Australian Dollar to US Dollar (AUD/USD) Exchange Rate Tumbles to Fresh 2018 Low
A mixture of factors, including underwhelming Australian ecostats and a broadly stronger US Dollar (USD), have left the Australian Dollar to US Dollar (AUD/USD) exchange rate tumbling in recent sessions.
Due to its drops in the past two weeks, AUD/USD has slumped to its worst levels since last year. AUD/USD opened this week at the level of 0.7844 and was trending near a two-month-low of 0.7730 on the first day of March.
While the US Dollar has been gradually strengthening in recent weeks anyway, Thursday’s drop in AUD/USD was due to market disappointment in the latest Australian ecostats.
Thursday saw the publication of Australia’s AiG manufacturing PMI from February, which slipped from 58.7 to 57.5.
Australia’s Q4 private capital expenditure report was more disappointing, missing the 0.9% forecast and slumping from 1.9% to -0.2% quarter-on-quarter.
Weakness in Asian equity markets and stocks also weighed heavily on the risky Australian Dollar (AUD) on Thursday, as did news that iron ore prices were falling after hitting highs earlier in the week.
US Dollar (USD) Exchange Rates Rally as Federal Reserve Confidence Rises
Since Federal Reserve Chairman Jerome Powell’s Congressional Testimony on Tuesday, demand for the US Dollar has been stronger on relief about the consistency of monetary policy going forward,
Markets had been uncertain about the Federal Reserve outlook under its new Chairman, but Powell indicated that policy under his tenure would be consistent with that of his predecessor, Janet Yellen.
This bolstered market confidence that the Federal Reserve would continue to cautiously focus on the strength of the US economy and the US jobs market when contemplating monetary policy in 2018 and beyond.
Markets are also more confident that the Fed will hike US interest rates around three times in 2018, with some analysts speculating that even a fourth may be possible.
Due to market optimism about the new Fed Chairman, US Dollar investors have largely brushed over recent US data which has had little impact on the US economic outlook.
Wednesday saw the publication of the second US Gross Domestic Product (GDP) projection for Q4 2017, which slowed from 3.2% to 2.5% quarter-on-quarter as expected.
The February Chicago PMI and January’s pending home sales results both disappointed with worse than expected results, but ultimately market optimism over the Federal Reserve helped the US Dollar to hold its ground regardless.
Australian Dollar to US Dollar (AUD/USD) Forecast: US PCE Inflation Figures Ahead
Could the Australian Dollar to US Dollar (AUD/USD) exchange rate recover from its 2018 lows? That largely depends on upcoming US data and whether or not it has an impact on the US economic outlook.
Thursday’s American session will see the publication of January’s US Personal Consumption Expenditure (PCE) results. As the PCE print is the Federal Reserve’s preferred measure of US inflation, it could be highly influential if it surprises investors.
ISM’s February US manufacturing PMI is likely to be influential too. The figure is currently forecast to have slipped from 59.1 to 58.7, so if it beats expectations the US Dollar is more likely to hold its weekly gains against the Australian Dollar.
As for the ‘Aussie’, it’s likely to remain weak in the coming sessions amid a lack of notable Australian ecostats due until next week. On Monday, Australia’s February services PMI from AiG will be published.
Investors are also highly anticipating the Reserve Bank of Australia’s (RBA) March policy decision on Tuesday, to see how the bank reacts to recent underwhelming Australian data and Australian Dollar weakness.