The AUDUSD currency pair was trading down over 40 pips as the Australian dollar fell against the US dollar for the third consecutive day, driven by hawkish comments from Federal Reserve policymakers James Bullard and Loretta J. Mester.
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Investors took the Fed’s hawkish comments more seriously than similar comments from the Reserve Bank of Australia (RBA) Governor Philip Lowe, who said that the RBA remains open to further rate hikes, even as analysts price in a further 25 basis point hike during the March meeting.
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On the other hand, Fed speakers have mentioned that a 50 bps hike might be on the table following the recent positive retail sales data, which signalled that the US economy was in better shape than many had predicted before the release of the retail sales data.
Recent inflation data from the United States further indicated that the Fed’s rate hikes had the intended impact on inflation, which rose at an annualised 6.4%, marking a slight improvement to the 6.5% annual rate recorded in December.
Still, inflationary pressures are present in the US as housing costs keep rising, causing monthly inflation to rise 0.5% in January compared to 0.1% in December. Therefore, the Fed may be right in hiking rates by 0.50% at its March meeting.
However, more rate hikes risk plunging the US economy into a recession, which is why the recent positive retail sales data was crucial. The retail sales data combined with the positive nonfarm payroll data released this month indicate that the US economy is much more solid than many thought.
As a result, the dollar has strengthened against most of its peers, including the Australian dollar, even as the RBA plans to hike rates by 0.25% at its March meeting, which is half the Fed’s projected 0.5% rate hike.
Therefore, the Aussie’s weakness has more to do with the stronger US dollar than itself. There’s only one significant Australian macro report planned for next week: the country’s wage price index, which could boost the Aussie. The Aussie also tends to rally on upbeat Chinese data due to the close economic ties between the two counties.
*This is not investment advice.
AUDUSD price chart.
The AUDUSD currency pair was trading down 40.5 pips (0.39%) as the Aussie fell against the US dollar for the third consecutive day.
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