The Australian Dollar began to dip from its best levels on Tuesday after a solid week of rallying, and this movement continued throughout Wednesday’s session despite typically supportive developments for the ‘Aussie’ in commodity and domestic news.
This Week’s Australian Dollar Exchange Rates:
Pound Sterling to Australian Dollar (GBP/AUD) – Week’s High: 1.7057 Week’s Low: 1.6732
US Dollar to Australian Dollar (USD/AUD) Week’s High: 1.3111 Week’s Low: 1.2900
Euro to Australian Dollar (EUR/AUD) Week’s High: 1.4759 Week’s Low: 1.4431
New Zealand Dollar to Australian Dollar (NZD/AUD) Week’s High: 0.9501 Week’s Low: 0.9343
US Dollar Fluctuations Distract Investors from ‘Aussie’ Rally
Despite the Reserve Bank of New Zealand’s (RBNZ) decision to cut interest rates at its August policy meeting it wasn’t long before the ‘Kiwi’ returned to a stronger footing. Markets had anticipated the 0.25% cut to interest rates well in advance of the meeting, diminishing the impact of the decision. As the New Zealand Dollar offers a higher-yielding return than its closest rivals there was seen to be little reason to sell out of the currency.
The Australian Dollar has been one of the most attractive and in-demand currencies in the foreign exchange market for the last few weeks, even advancing and remaining highly overvalued despite an interest rate cut from the Reserve Bank of Australia (RBA).
Prices of iron ore, Australia’s most lucrative commodity, have helped to boost the ‘Aussie’ Dollar higher across the board as the value of the commodity rallied above US$60 per tonne and hit new highs.
Poor Chinese trade data published over the last week may have begun the ‘Aussie’ slowdown, but a shift in focus towards the ‘safe-haven’ US Dollar was the main factor taking the wind from AUD’s sails.
Even despite prices of iron ore reaching almost US$62 per tonne by Wednesday, the Australian Dollar was sold from its highs as markets began to move away from risky commodity-correlated currencies towards USD.
Hawkish Federal Reserve officials, as well as hopes for Thursday’s Fed minutes report and next week’s Jackson Hole Fed speech allowed the US Dollar to recover slightly from recent risk-on selloffs, causing Australian Dollar demand to slip.
Quiet Economic Calendar Leaves AUD to be Driven by Market Factors
Besides Thursday’s key Australian employment report, the coming week’s Australian economic calendar is considerably quiet. Next Wednesday will see the publication of Australia’s Q2 construction work report, but that’s next week’s most influential domestic figure. This of course, leaves the Australian Dollar to do what it does best: move in relation to commodity and risk-correlated sentiments in the market.
If the US Dollar continues to recover as it has done since Tuesday’s American session, this could undermine any ‘Aussie’ advance attempts and cause the currency to slip further.
However, with the Reserve Bank of Australia (RBA) adopting a surprisingly optimistic stance earlier this week and iron ore prices remaining robust the Australian Dollar may continue to be one of the most appealing currencies for investors looking for a higher yield.
This means that even if the ‘Aussie’ drops, favour towards the currency will likely remain on the upside, and the currency could see another surge in demand if global factors weigh on other major currencies.