Australian Dollar (AUD) Surprisingly Surges Following CPI Before Correcting Overnight

Yesterday the Australian Dollar (AUD) moved irrationally following the release of Australian inflation data in the form of the Consumer Price Index (CPI). Despite a weaker than expected result, the ‘Aussie’ (AUD) surged, making gains in excess of a full percent against most traded currencies. These gains were then lost overnight as the European trading session corrected the value of the ‘Aussie’ (AUD).

Australia’s annual CPI figure decreased from 2.3% down to 1.7% Yesterday. With both the annual and quarterly figures falling short of the forecasted expectations; 1.7% and 0.2% respectively. This should have seen AUD weaken but The Australian Dollar surprised the market by immediately strengthening by approximately one percent.

With the CPI falling outside of the Reserve Bank of Australia’s (RBA) target range of 2.0-3.0%, there may be justification for an interest rate cut when the board announces their first Rate Decision of 2015 next Tuesday. An interest cut from the AUD will almost certainly weaken the value of the Australian Dollar further.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Remains Below 0.80 US cents

Although the AUD/USD exchange rate increased significantly yesterday, it failed to gain any traction when it bounced back above the 0.80 US cent mark and is currently trading at below the 0.79 cent mark.

In the early hours of this morning the US Federal Open Market Committee (FOMC) announced they will be keeping rates on hold at 0.25% once again. During this meeting The Federal Reserve made rather positive comments about the US economy, referring to its’ expansion as being “at a solid pace”. The Fed also made mention that it will exercise patience in raising interest rates, indicating that the first increase is likely to occur from June 2015 or later.

The positivity surrounding the FOMC Rate Decision not only corrected the AUD/USD exchange rate, but it provided extra strength to the ‘Greenback’ (USD). This saw the AUD/USD exchange rate return back under the 0.79 US cent mark and come dangerously close to a 5 and a half year low, currently set at 0.78596.

Tonight the US economy will release employment indicators in the form of Continuing Claims and Initial Jobless Claims. The more significant economic release out the States will occur tomorrow evening when the Gross Domestic Product (GDP) figure is announced. The annualised US GDP figure is expected to reduce to 3.0% from the previous reading of 5.0%.

Australian Dollar to Euro (AUD/EUR) Exchange Rate Trading Around 0.70 Euro Cents

The AUD/EUR exchange rate has probably been the most volatile currency pairing of 2015 for the Dollar. We have experienced major swings back and forth over the past 4 weeks. Currently the AUD/EUR exchange rate is trading around the 0.70 Euro cent mark.

Although it is a quiet day of economic releases out of the Australian economy today, we can expect further volatility following the release of the German Unemployment Rate and Consumer Price Index (CPI) this evening.

The Euro is appearing vulnerable in the lead up to the weekend, with the Euro-Zone CPI and Unemployment Rate released tomorrow night, all of which are poised to soften the currency. If this does come to fruition, we may see the AUD/EUR exchange rate approach an 18 month high.

Terry Finn