Australian Dollar Slips against US Dollar as Fed Meeting Nears
The Australian Dollar to US Dollar exchange rate has been unable to sustain a recovery so far this week as investors anticipate a rate hike from the Federal Reserve. AUD USD has trended in the region of 0.75 since the weekend.
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After a brief advance on Monday, AUD USD fell back towards the week’s opening levels on Tuesday. Underwhelming Australian ecostats left the ‘Aussie’ without the support needed to mount a solid recovery against the sturdy US Dollar.
Tuesday’s Asian session saw the publication of a February business confidence survey from NAB. The print slipped from 10 to 7, with the business conditions figure falling from 16 to 9.
An unexpected slip in Chinese retail sales year-on-year also dampened demand for the Australian Dollar, as China is Australia’s biggest trade partner.
Demand for the ‘Aussie’ has also been hindered by low risk-sentiment over the last week.
Last week saw Federal Reserve interest rate hike bets rise to over 85% due to solid US data and hawkish statements from Fed officials. This week Fed hike bets rose above 90% and most investors are now confident that US interest rates will be hiked this week.
The likelihood of higher interest rates in the US has dampened demand for the high-yielding but risky Australian Dollar, especially with many investors hoping for even more Fed rate hikes throughout 2017.
While this news has weighed on the Australian Dollar’s strength, the US Dollar’s bullishness has also faded preventing it from dragging AUD USD much lower.
Analysts perceive a March Fed rate hike as being largely priced into the US Dollar already, meaning the ‘Greenback’ now contends with psychological resistance before it can advance much further.
If data from the coming weeks and months indicates to investors that the Fed could continue to hike US interest rates at a decent pace, the US Dollar could easily extend its gains however.
This week’s US data is unlikely to give the US Dollar a significant boost unless it comes in high enough to indicate that the US economy will perform strongly in the coming months too.
Regardless, the Federal Reserve meets for its March policy decision on Wednesday. If it doesn’t hike US interest rates as expected the US Dollar will plummet, but analysts predict a rate hike is a foregone conclusion.
The Australian Dollar could still find support later in the week if Australia’s February employment results beat expectations however. This may even help the Australian Dollar to advance against the US Dollar, which continues to struggle with psychological resistance levels.
At the time of writing, the Australian Dollar to US Dollar exchange rate trended in the region of 0.75. The US Dollar to Australian Dollar exchange rate traded at around 1.32.