Poor Christmas for AU Retailers Triggers AUD/USD Exchange Rate Decline
The Australian Dollar has fallen by -0.5% against the US Dollar (AUD/USD) today, following the release of the NAB business confidence reading for December.
Although the confidence index showed rising optimism with growth from 7 points to 11, underlying conditions in December have concerned AUD traders.
All major retail sectors have reported poor trading during the last month of 2017, which means falling sales, prices and profits.
This would be concerning news at any point in the year, but poor conditions in December are especially alarming when the month usually sees increased sales activity.
Putting a positive spin on the data, NAB Chief Economist Alan Oster stated;
‘We remain hopeful that Australia will see temporarily above trend economic growth in coming quarters, thanks to support from improving business investment and elevated levels of infrastructure construction’.
Iron Ore Price Drop Continues, Lowering Demand for Australian Dollar
As with Monday, the cost of iron ore has also declined today, putting further pressure on the Australian Dollar.
The factor to blame for this most recent dip in prices is Chinese inventories of the commodity, which are reportedly near record-high levels.
China continues to dominate iron ore price movement, but if steelmaking in the country picks up then demand (and prices) could rise to benefit the AUD/USD rate.
US Dollar to Australian Dollar Exchange Rate Rises ahead of Fed Leadership Change
During a current lull in the US, the US Dollar has appreciated against the Australian Dollar as well as the Pound and New Zealand Dollar.
This advance comes ahead of a change of chairs in the Federal Reserve, the US’s central bank.
Longstanding Chair Janet Yellen will be making way for her successor, Jerome Powell, at the end of the week.
Powell is widely seen as a ‘safe pair of hands’, with analysts predicting that he will continue with Yellen’s policy pathway for a time after he takes over.
The hope is that Powell could prove to be a more proactive leader of the Fed, potentially implementing more interest rate hikes in the coming years.
Highlighting the challenges facing the new Chair, Cornerstone Partner Macro Roberto Perli has said;
‘A key question is how much we will see this combination of higher asset prices and tax cuts plus a better economy reflected in inflation.
They may ultimately have no choice but to respond more aggressively. It will be a very tough call to make – I don’t envy Powell at all’.
Australian Dollar to US Dollar Forecast: AUD Rally possible on AU Inflation Increase
The Australian Dollar could regain lost ground against the US Dollar on Wednesday morning, when Q4 inflation rate figures will be released.
Higher inflation is forecast for both the quarter-on-quarter and year-on-year readings, which could mean that the Australian Dollar rises on such results.
Increased inflation will raise the chances of tighter monetary policy from the Reserve Bank of Australia (RBA), which could ultimately lead to higher interest rates.
The US Dollar may turn volatile in the near-term when Donald Trump gives his State of the Union Address.
The speech will outline the state of the US at present, as well as Trump’s plans for the US in 2018 and beyond.
If the President’s statements are well received, the US Dollar could advance further against the Australian Dollar.