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AUD/USD Exchange Rate Rallies to Two-Week High as Investors Flee US Dollar

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‘Greenback’ Sell-Off Prompts AUD/USD to Advance

The Australian Dollar US Dollar (AUD/USD) exchange rate climbed to a two-week high on Friday as markets strike a bearish stance towards the ‘Greenback’.

At the time of writing AUD/USD has soared around 0.55% today as markets increasingly shy away from the US Dollar.

US Dollar (USD) Tumbles despite Rising Inflationary Pressure

After taking a breather for the last couple of weeks the US Dollar has found itself on the back foot again this week despite US inflation proving to be stronger than expected.

A robust CPI reading on Wednesday as well as an uptick in producer price figures on Thursday would suggest that inflationary pressures are building.

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While this would normally lend support to speculation that the Federal Reserve may accelerate the pace of interest rate hikes this year, it appears that markets are still unconvinced.

Elias Haddad, Senior Currency Strategist at the Commonwealth Bank said;

‘The reaction of the USD and US equities to rising US inflation pressures suggest market participants are not convinced the Fed will quicken the pace of its interest rate normalisation cycle.’

‘Fed funds futures continue to discount about 75bps of interest rate hikes this year.’

Another factor holding down the US Dollar this week has been the publication of Trump’s budget proposal for 2019.

Trump’s proposals see government spending balloon to $4.4 Trillion next year, with analysts predicting this will lead to an annual deficit of around $1 trillion next year.

Meanwhile the Australian Dollar’s gains this week have largely been driven by the weakness in the US Dollar this week, with a disappointing labour report and subdued iron ore markets doing little to support the ‘Aussie’.

This has left the Australian Dollar a little more muted against some of the other majors such as the New Zealand Dollar, with AUD/NZD trading close to a six-month low.

AUD/USD Forecast: US Consumer Sentiment to Slide?

Looking ahead the AUD/USD exchange rate may end the week’s session a touch higher again as the US publishes its latest consumer confidence data.

The University of Michigan’s latest sentiment survey is forecast to show a slight slip in US household confidence this month, with the index expected to dip from 95.7 to 95.5.

Meanwhile looking to next week the Australian Dollar may advance again with the release of the latest domestic wage figures, with wage growth expected to have ticked higher in the fourth quarter.

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