RBA Dovishness Keeps Australian Dollar US Dollar (AUD/USD) Exchange Rate Under Pressure
The Reserve Bank of Australia’s (RBA) May meeting minutes did nothing to shore up the Australian Dollar to US Dollar (AUD/USD) exchange rate today.
Policymakers maintained a fairly dovish outlook on monetary policy, suggesting that interest rates are likely to remain at their current level for some time yet.
With the RBA committed to holding interest rates steady for months to come the appeal of the Australian Dollar (AUD) naturally declined.
Although the latest ANZ Roy Morgan weekly consumer confidence index showed an improvement this was not enough to keep AUD exchange rates on a stronger footing.
A general decline in market risk appetite also limited demand for the Australian Dollar on Tuesday, with geopolitical tensions on the rise once again.
Australian Dollar US Dollar (AUD/USD) Exchange Rate May Benefit From Weaker US Sales
While forecasts point towards a weakening of the US advance retail sales figure this may not be enough to boost the Australian Dollar to US Dollar (AUD/USD) exchange rate overnight.
Although sales growth within the US economy is expected to show signs of easing the mood towards the US Dollar (USD) is unlikely to particularly sour.
As long as sales avoid a contraction on the month then the downside potential of USD exchange rates looks set to remain limited.
Richard Franulovich, research analyst at Westpac, commented:
‘Strictly speaking the fuel for further USD upside is not completely spent – the USD remains undervalued and positioning is still short USD. That said, it’s doubtful a moderate degree of undervaluation and moderate short positioning on their own will be enough to sustain USD appreciation at the pace it has recently enjoyed.
‘From here the USD arguably needs a hawkish reprofiling of Fed tightening expectations and a further paring back of ECB normalisation plans. Yet, the latest US average hourly earnings and core CPI data for April – both sub-trend and sub-consensus at 0.1% – suggest that the Fed can stick with a gradual path.’
If commentary from Federal Reserve policymakers proves hawkish over the coming days this could weigh heavily on the AUD/USD exchange rate.
Tightening Australian Labour Market Forecast to Support AUD/USD Exchange Rate
A rallying point could be in store for the Australian Dollar to US Dollar (AUD/USD) exchange rate if Thursday’s raft of Australian labour market data impresses.
Any tightening of the labour market would give investors incentive to buy back into the softer Australian Dollar.
While even a strong showing here is unlikely to alter the current outlook of the RBA this could still help to bolster AUD exchange rates in the short term.
Focus will also fall on May’s consumer inflation expectation reading, which may point towards higher levels of domestic inflationary pressure.
However, any downside surprises could see the Australian Dollar to US Dollar (AUD/USD) exchange rate extending its losses heading into the weekend.