Solid but Unsurprising US Inflation Figures Keep US Dollar on Soft Form, Allowing Slim AUD/USD Exchange Rate Gains
The latest US consumer price index figures have provided a small boost for the AUD/USD exchange rate after failing to alter the outlook on Federal Reserve monetary policy.
The mixed nature of recent Australian domestic data has left the markets with little reason to push the Australian Dollar significantly higher or lower, preventing it from capitalising further on the US Dollar’s weakness.
The latest ANZ Roy Morgan weekly consumer confidence index has seen a notable drop in sentiment, with the index falling from 119.0 to 116.0.
While the NAB business confidence survey shown weakening sentiment, with the index falling from a downwardly-revised 11 points to 9 points, the business conditions index hit a record high of 21 points, climbing 17% month-on-month to the highest level since the survey began in 1997.
With the Reserve Bank of Australia (RBA) signalling that inflation and employment continue to be the key metrics against which the need for adjustments to monetary policy will be judged, markets are waiting to see if this strong business confidence translates into additional hiring activity and higher wage growth before getting too excited.
On-Target US Consumer Price Index Figures Benefit AUD/USD Exchange Rate as Policy Outlook Remains Unchanged
The latest US inflation and wage growth data proved solid, but gave markets no reason to reprice the odds of further interest rate hikes this year, allowing the AUD/USD exchange rate to inch higher.
Consumer prices grew 2.2% overall during February as forecast, compared to growth of 2.1% in January, while core consumer price growth held steady at 1.8%.
Real average weekly earnings showed unchanged growth of 0.6% year-on-year thanks to an upwards revision to January’s figures, while average hourly earnings growth slowed from an upwardly-revised 0.7% to 0.4%.
With core inflation remaining below the Federal Reserve’s target rate and wage growth showing little sign of an uptick, there is no reason to believe the Federal Open Market Committee (FOMC) would have to accelerate the pace of its monetary tightening in order to reign in price growth.
There was therefore little incentive for markets to take up or adjust positions on the US Dollar, boosting the AUD/USD exchange rate.
Markets were also unsettled by the shock news that President Donald Trump had fired Secretary of State Rex Tillerson, keeping fears of the instability of the US administration alight.
AUD/USD Exchange Rate to Weaken as NZ GDP Figures Make New Zealand Dollar More Appealing Risk Asset?
With no Australian data set for release in the immediate future, the AUD/USD exchange rate will be left at the mercy of Chinese, US and New Zealand data.
Chinese retail sales and industrial production figures for February could provide a boost for the Australian Dollar if they show strong demand, as this would bode well for the domestic export industry.
Meanwhile US advance retail sales are expected to have recovered in February after the previous -0.3% decline, growing 0.3% this time around.
This might be another muted sign from the US economy, so may not place too much pressure upon the Australian Dollar.
However, the upcoming New Zealand gross domestic product figures for the fourth-quarter of 2017 may undermine demand for the Australian Dollar by making the New Zealand Dollar a much more appealing asset.
New Zealand’s economy is expected to have grown 0.8% quarter-on-quarter – up from the previous rate of 0.6% – and 3.1% year-on-year – up from 2.7% seen in Q3.