Australian Dollar US Dollar Exchange Rate Slips on Ongoing Fed Bullishness
The Australian Dollar US Dollar exchange rate has continued to tumble this week, falling from the week’s opening levels of 0.73 to a half-year-low of 0.72. This has been largely due to ongoing Fed optimism, but concerns about a worsening Australian deficit have also weighed on Australian Dollar trade.
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Australian Dollar (AUD) Weakened by Current Account Deficit Forecast
Demand for the Australian Dollar had already been weak this week due to the Federal Reserve’s hawkish tone last week.
The thought of higher US interest rates in the coming years, combined with a potential easing bias from the Reserve Bank of Australia (RBA), considerably worsened the spread outlook for the typically high-yielding AUD exchange rates.
Lower prices of iron ore, Australia’s biggest commodity export, have also weighed on demand for the ‘Aussie’. Risk-sentiment in general has been low since last week’s Fed meeting, which has weakened commodity trade too.
The most recent downside factor in AUD trade was Tuesday’s news that Australia’s government, which previously forecast a solid budget balance, was now predicting that the nation would amass an account deficit as big as –AU$10b by 2019/20.
US Dollar (USD) Sees Continued Strength from Fed’s 2017 Outlook
In what is sure to be seen as the most important Federal Reserve meeting of 2016, the Federal Open Market Committee hinted last week that it held a more hawkish than expected 2017 interest rate outlook.
Forecasters expected the typically dovish Fed to hint at two 2017 rate hikes of 25 basis points each, but the Fed instead hinted that as many as three could happen.
If all three rate hikes were instated, this would leave the US interest rate at 1.50% by the end of 2017. While the Fed was sure to remind markets that uncertainty was high and this was anything but confirmed, the hawkish outlook of the bank left the US Dollar considerably strong.
The US Dollar was not weakened this week despite Monday’s December PMIs from Markit failing to meet expectations.
Further Lows Expected in Australian Dollar US Dollar Exchange Rate
The Australian Dollar US Dollar exchange rate could slip to its lowest levels since the beginning of 2016 if its current trend continues much longer. Due to 2017’s interest rate outlook from the Fed, it could continue to see long-term downside trends.
Demand for risk-correlated currencies will likely be continuously limited in the coming weeks as 2016 heads to a close, as US traders remain excited about the prospect of 2017 rate hikes.
Commodity trade will also possibly slow down as the holiday period approaches, which may leave iron ore prices near their current relatively disappointing levels.
As for economic data, Wednesday will see the publication of the US November existing home sales and the MBA’s latest US mortgage applications results.
Thursday will see a flurry of relatively influential US data published, including tertiary Q3 Gross Domestic Product (GDP) figures and November durable goods orders, as well as personal income and spending results.
Australia, on the other hand, will not see any more highly influential data published this week. Instead, the Australian Dollar US Dollar exchange rate is predicted to see a steady downside trend this week due to the market’s low risk-sentiment.
Australian Dollar US Dollar Interbank Rates
At the time of writing, the Australian Dollar US Dollar exchange rate trended in the region of 0.72, while the US Dollar Australian Dollar exchange rate traded at around 1.38.