AUD/USD Exchange Rate Slumps after FOMC Minutes
Australian Construction PMI fell deeper into contraction territory to push the Australian Dollar to US Dollar (AUD/USD) exchange rate lower.
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Stronger Chinese Data Shored up Australian Dollar to US Dollar (AUD/USD) Exchange Rate
Wednesday was a particularly turbulent day for the Australian Dollar to US Dollar (AUD/USD) exchange rate. Initially the ‘Greenback’ (USD) was bolstered by a stronger-than-expected ISM Non-Manufacturing Composite Index, as the world’s largest economy demonstrated fresh signs of strength. This bullish result also encouraged speculation that the hawks on the Federal Open Market Committee (FOMC) could push through an interest rate hike sooner rather than later.
However, the AUD/USD exchange rate did not remain on a downtrend for long as the latest Chinese Services and Composite PMIs proved cause for a rally. Investors were encouraged to see that the Chinese economy had returned to a state of expansion in March, with increased optimism boosting demand for the commodity-correlated ‘Aussie’ (AUD).
Disappointing Australian Construction PMI Dents Australian Dollar (AUD) Exchange Rate
In advance of Thursday’s FOMC meeting minutes the US Dollar continued to soften against rivals, with expectations pointing towards another dovish message. Given the more cautious tone of Fed Chair Janet Yellen since the March policy meeting it certainly seemed inevitable that the minutes would put renewed emphasis on the downside risks of deteriorating global market conditions.
While the overall tone of the meeting minutes was ultimately found to be on the dovish side this did not prevent the AUD/USD exchange rate from sliding in response. An increasing dissent was apparent amongst policymakers, indicating that the chances of a rate hike in the coming months might be higher than markets have been pricing. Consequently the US Dollar retook ground against many of the majors, despite the likelihood of an imminent hike still being decidedly limited.
Demand for the Australian Dollar, meanwhile, diminished on the back of the latest Australian Construction PMI. Investors were disappointed to see that the domestic construction industry had fallen further into contraction territory in March, indicating that the Australian economy has been struggling due to negative global headwinds. As a result the AUD/USD exchange rate saw a sharp slump throughout the European session, dropping to a weekly low of 0.7495.
AUD/USD Exchange Rate Forecast: US Wholesale Inventories Predicted to Boost US Dollar Demand
Later this morning Fed Chair Yellen will be speaking again, with further cautious words likely to knock the US Dollar off its recent bullish run. However, given the indication that consensus amongst the FOMC is relatively fraught at this juncture, the impact of any comments from Yellen could prove a little more muted.
February’s US Wholesale Inventories figure is also set to provoke volatility for the AUD/USD currency pair going into the weekend, with economists anticipating a decrease from 0.2% to -0.2%. As lower inventories correlate to higher consumer demand, and thus confidence, this could boost the ‘Greenback’ higher, particularly if safe-haven sentiment remains elevated.