The Australian Dollar outlook has become continuously more bearish in recent weeks, but the Australian Dollar to US Dollar (AUD/USD) exchange rate has seen a strong rebound in demand this week as investors digest the latest major Central Bank developments.
After opening this week at the level of 0.6873, AUD/USD briefly slumped and touched on its worst levels in months. 0.6834 was the worst AUD/USD level since the January 2019 flash crash, and not counting the flash crash it was one of the worst levels for the pair in years.
Still, AUD/USD has since recovered from those worst levels due to rising bets of Federal Reserve dovishness, as well as speculation that the Fed could be even more dovish than the Reserve Bank of Australia (RBA).
Despite rising expectations that the Reserve Bank of Australia will continue to take a dovish tone on Australian monetary policy, and a lack of particularly supportive Australian data recently, the Australian Dollar has rebounded.
Investors were more willing to buy the trade-correlated ‘Aussie’ back from its worst levels in profit-taking as the US Dollar plummeted on Federal Reserve news.
The Federal Reserve’s tone was perceived as more dovish than the RBA’s recent tone, making the ‘Aussie’ more appealing than the US Dollar in comparison.
The Australian Dollar’s gains were generally limited though, due to a lack of supportive Australian data this week, as well as ongoing US trade concerns. Hopes for progress in US-China trade talks have helped the Australian Dollar to hold some gains.
The primary cause of AUD/USD movement has been a weaker US Dollar though. Investors have been selling the US Dollar even further since the Federal Reserve took a notably dovish tone on US monetary policy yesterday.
Investors took the Fed’s signals to mean that a US interest rate cut was on the way before the end of 2019, and markets have already priced in a 100% chance of the bank cutting US interest rates in July.
Some investors are even speculating that the bank could cut rates by 50 basis points.
The bank’s dovish signals, as well as news that one St. Louis Fed President James Bullard wanted rates to be cut now rather than waiting, spooked investors and left the US Dollar tumbling.
Could the Australian Dollar to US Dollar exchange rate continue its current advance though? That depends on how upcoming data influences Central Bank speculation.
Tomorrow will see the publication of June PMI projections for both Australia and the US.
While Australia’s CommBank PMIs and US Market PMIs are not as influential as the nations’ other PMI prints, they will still give investors a better idea of how economies are performing this month.
Looking ahead to next week, a Monday speech from Reserve Bank of Australia (RBA) Governor Philip Lowe could influence Central Bank speculation if it surprises investors.
However, US data will dominate the economic calendar for AUD/USD traders next week. US durable goods orders data from May will come in on Wednesday, followed by Q1 growth rate stats on Thursday and Personal Consumption Expenditure (PCE) data on Friday.
Of course, as June draws to a close, Australian Dollar to US Dollar exchange rate investors will also be paying close attention to the upcoming G20 summit and possible US-China trade developments.