AUD USD Exchange Rate Plummets Following Weak Inflation Data
The Australian Dollar US Dollar (AUD USD) exchange rate tumbled by around half a cent on Wednesday following the release of lacklustre inflation figures from Australia.
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Australian Dollar (AUD) Sinks as Inflation Disappoints
The Australian Dollar fell from its best levels against the US Dollar on Wednesday as investors were dismayed by the latest domestic inflation figures.
According to the Australian Bureau of Statistics (ABS), year-on-year inflation slowed from 2.1% to 1.9% in the second quarter as headline inflation rose by only 0.2% against the 0.4% that had been predicted by economists.
The largest price falls over the three months to June appeared to be in domestic holiday travel and accommodation followed closely by a decline in automotive fuel.
Further adding to the ‘Aussie’s woes were suggestions from analysts that the weaker inflation rate in relation to the overall gloomy outlook for GDP will likely cause the Reserve Bank of Australia (RBA) to leave interest rates on hold for the foreseeable future.
Kate Hickie, Australia and New Zealand economist at Capital Economics said;
‘We doubt this will mark the beginning of a sustained pick-up in underlying inflation given that GDP growth is likely to remain below potential again this year and next,” she said following the release of the report.’
‘Alongside the RBA’s financial stability concerns, this explains why we doubt the RBA will begin to raise rates until 2019.’
Successful Healthcare Vote Strengthens US Dollar (USD)
The US Dollar found strength early on Wednesday following the senate vote to floor a debate on the repealing of ‘Obamacare’.
Despite the closeness of the vote this was seen a major victory for US President Donald Trump who has faced a number of defeats in his attempts to implement a new healthcare bill.
Markets are hopeful that this signals a turnaround for the Presidency and that Trump will be able to build on this momentum to also to push through his long awaited stimulus plans and tax reforms.
AUD USD Forecast: Will the Fed Signal Further Monetary Tightening in 2017?
Looking ahead movement in the AUD USD exchange rate is likely to be closely tied to the latest Federal Reserve meeting overnight on Wednesday as the central bank gathers for its latest rate decision.
While economists are not expecting the bank to raise interest rates at the meeting, they are hoping for some hints towards the Fed future monetary policy and whether markets can expect a third rate hike from the bank later this year.
Current Interbank Exchange Rates
At the time of writing the AUD USD exchange rate was trending around 0.7910 and the USD AUD exchange rate was trending around 1.2638