US Dollar to Australian Dollar Fluctuates on Lack of ‘Greenback’ Appeal
Despite low demand for risky currencies this week, the US Dollar has failed to capitalise against a weak Australian Dollar due to concerns about the US economic outlook and low Fed rate hike bets.
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USD AUD has seen range-bound trade this week and fluctuates between highs of 1.3225 and lows of 1.3118.
US Dollar (USD) Outlook Uncertain as IMF Growth Forecasts Cut
This week has seen market confidence in US President Donald Trump knocked again, following a gloomy report from the International Monetary Fund (IMF).
Due to a lack of confidence in Trump’s proposals for ambitious US fiscal policy, the IMF cut its US growth forecast for 2017 from 2.3% to 2.1% and its 2018 forecast from 2.5% to 2.1%. This is well below the 3% growth target set by the White House.
An extract from the IMF report reads;
‘The consultation revealed differences on a range of policies and left open questions as to whether the administration’s proposed policy strategies are best suited to achieve their intended purpose’
Doubts about Trump’s economic policy proposals have been worsening in recent months due to ongoing Trump-Russia controversies, as well as the Republican Party’s difficulty in passing a major healthcare bill through Congress.
Markets expect that if the healthcare bill fails to pass, the Republican Party is also unlikely to accept Trump’s ambitious proposals for tax cuts and infrastructure investment.
US Dollar demand was also weakened as Federal Reserve interest rate hike bets failed to find any support from Fed Chairwoman Janet Yellen this week. Yellen seemed to hesitate to discuss monetary policy in her speech, which was seen as concerning to markets.
Australian Dollar (AUD) Mixed Despite Strong Iron Ore Gains
The Australian Dollar has failed to capitalise on stronger demand for iron ore or a weaker US Dollar this week, as other commodities fluctuate and strong demand for European currencies weakens risk-sentiment.
As iron ore is Australia’s most lucrative commodity, shifts in iron ore demand typically influence Australian Dollar movement.
Tuesday saw iron ore prices putting in their biggest single day of gains in over four months. Chinese iron ore futures remained strong indicating that the commodity had further to rise in the coming days.
However, forecasts that iron ore is in for losses in 2017 overall, as well as mixed movement in other commodities like oil, have weighed on the ‘Aussie’.
Preliminary US oil inventory data has indicated that oil stockpiles could increase more than expected, causing oil prices to drop.
USD/AUD Forecast: US Data in Focus
Investors remain concerned about the US economic outlook but this week’s upcoming US ecostats could change that slightly if they impress.
Thursday will see the publication of the latest US jobless claims results, as well as the final Q1 Gross Domestic Product (GDP) report. If US growth beats expectations it could increase market hopes that the US economy could be more resilient later in 2017 too.
Friday’s US data also has the potential to heavily influence USD movement and Federal Reserve interest rate hike bets.
Michigan University’s final June inflation expectations survey could lead to higher Fed bets if it beats expectations. This would lead to some late-week gains for the US Dollar.
The Australian Dollar is unlikely to be heavily influenced by economic data for the rest of this week. Investors will largely overlook Friday’s private sector credit data and focus on risk-sentiment and commodity news.
If prices of key commodities rise and Fed rate hike bets remain low, USD AUD could slip towards the end of the week.
USD AUD Interbank Rate
At the time of writing this article, the US Dollar to Australian Dollar exchange rate trended in the region of 1.3178. The Australian Dollar to US Dollar exchange rate traded at around 0.7587.