Australian Dollar (AUD) Strengthens as US Interest Rate Speculation Cools

Although the Australian Dollar to US Dollar (AUD/USD) exchange rate has lost a considerable amount of ground over the last few months, the ‘Aussie’ has been able to stabilise a little this week. The Australian Dollar pushed back above 88 US cents on Monday as demand for the US Dollar was undermined by below-forecast US services PMI. As the US services sector is responsible for driving total economic growth, the disappointing result fuelled speculation that the Federal Reserve will hold off increasing interest rates until the second half of next year.

The AUD/USD exchange rate extended gains after Australian consumer confidence was shown to have improved to a 12-week high. While this was a positive step, some industry experts remain cautious. As stated by economist Warren Hogan; ‘consumer confidence clearly remains fragile and we will continue to monitor confidence closely for an early read on consumption in the fourth quarter of the year.’There was also good news for China, Australia’s largest trading partner. The nation’s industrial profits were shown to have increased by 0.4% on the year in September, helping to counter the -0.6% drop recorded in August.

On Tuesday the AUD/USD exchange rate fluctuated in response to mixed US reports. Although consumer confidence in the US was shown to have soared in October, the nation’s durable goods orders declined by 1.3% on the month rather than gaining the 0.5% expected. With the disappointing result weighing heavily on the US Dollar ahead of the Federal Open Market Committee’s upcoming policy meeting, the AUD/USD exchange rate was able to push higher by over 0.5%.

During the Australasian session volatility in the Australian Dollar to US Dollar exchange rate could be occasioned by China’s Leading Index and Westpac-MNI Consumer Sentiment measure. That being said, investors with an interest in the AUD/USD exchange rate are more likely to be focusing on the US FOMC interest rate announcement. If the Fed decides to delay bringing its quantitative easing measures to an end (which it might given global growth fears) higher risk currencies like the Australian Dollar would benefit and the AUD/USD pairing could climb.