The AUD/USD exchange rate has fallen back to a 3-week low of 0.7861 overnight after the Federal Reserve minutes & better than expected Housing Data Results from the US on Wednesday. The expected forecast results for April of 9.6% was far exceeded with the result coming in at 20.2% for Housing Starts (the highest level in 7 ½ years), followed by Building Permits results which were up 10.1% from 2.1% in March.
These results have confirmed the view of many economists that the USD is due for a stronger second-quarter after a poor string of results from the first quarter of 2015 culminating in poor retail sales delivered in April, with the Federal Reserve pointing towards weather-related weakness in the first-quarter after its April meeting.
More volatility is due in the AUD/USD exchange rate this week as today seen the release of the Federal Reserve minutes from April’s meeting, however the markets are looking further ahead to Friday when the Central Bank Chair Janet Yellen speaks at the Greater Providence Chamber of Commerce Economic Outlook Luncheon.
LPL Financial economist and strategist John Canally said the key to the Central Bank minutes, when they are released at 04:00am EST, will be what they say about the nature of the first quarter’s softness.
“Everybody just thinks the minutes are going to be dovish. The minutes always turn out to be hawkish, and then we’ll see what Yellen has to say to right the ship,” Canally said. “The minutes are a month old and the Fed has a whole month more of data to show the economic weakness was transitory.”
“They are desperate to raise rates this year. I think she’ll harp on the usual stuff that (the Fed) is data dependent,” said Canally.
Since the April meeting the market has been of the view that the US Interest Rate hike would be pushed back from September and more towards January 2016. That speculation shifted slightly on Wednesday after the strong housing data showing potential for a construction rebound in the second-quarter with the odds moving back in favour of a September increase.
This evening sees another raft of USD data releases including Jobless Claims, Existing Home Sales, Manufacturing PMI and the Philadelphia Fed most of which are forecast for positive improvements on March results.
The Fed will be hoping to see a bounce back in many results across the economy to show good evidence that a rate rise is a good option, but more importantly will be the timing of the decision; The Fed will have to be convinced that it’s not going to hurt the economy.
Friday evening sees USD CPI figures released making the end of the week very focussed on the US, and the AUD/USD will be heavily dependent on results from the US.
The AUD/USD exchange rate was trading at 0.7870 as of 08:00 EST.