AUD USD Exchange Rate Failed to Benefit from US GDP Miss
With general market risk appetite weakening once again the Australian Dollar US Dollar exchange rate returned to a weaker footing ahead of the weekend.
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Investors were not impressed to find that Australian private sector credit had failed to pick up as forecast in March.
While credit growth remained steady at 0.3% on the month this failed to improve confidence in the outlook of the domestic economy, leaving the ‘Aussie’ lacking in support on Friday.
The data also showed that investment in non-mining sectors remains somewhat sluggish, raising fresh concerns over efforts to rebalance the Australian economy.
In spite of the serious disappointment that greeted the Trump administration’s threadbare tax reform proposal demand for the US Dollar soon picked back up.
Although the annualised first quarter US gross domestic product data proved lacklustre this was not enough to boost the AUD USD exchange rate overnight.
Investors continued to buy into the ‘Greenback’ in spite of the sharp slowdown in domestic momentum, with forecasts pointing towards a strong rebound in the second quarter.
As Paul Ashworth of Capital Economics noted:
‘Household spending was held down by a drop back in motor vehicle sales from a near-record high at the end of last year and the unseasonably warm winter weather, which depressed utilities spending. But consumer confidence is unusually high and real personal disposable income increased at a 4% annualised pace in the first quarter.’
AUD USD Forecast: More Hawkish RBA Meeting Could Boost ‘Aussie’
Demand for the antipodean currency is likely to remain muted ahead of Tuesday’s Reserve Bank of Australia (RBA) policy meeting.
While policymakers are not expected to make any significant changes at this juncture markets are likely to view the meeting with some degree of uncertainty.
If the RBA reiterates its concerns over the heat of the domestic housing market and fails to adopt a more optimistic view on the wider economy then the ‘Aussie’ could see fresh selling pressure.
On the other hand, any move towards hawkishness could give the AUD USD exchange rate a strong rallying point.
Confidence in the US Dollar, meanwhile, could remain bullish if March’s personal consumption expenditure core points towards an increase in domestic inflationary pressure.
Given that the PCE is the Federal Reserve’s preferred measure of inflation a strong showing here could raise the prospect of interest rates being hiked again sooner rather than later.
Any shortfall, however, could add downside pressure to the ‘Greenback’, particularly if markets lose further faith in the Trump administration’s ability to deliver on its promised fiscal stimulus and other major policy pledges.