Australian Dollar to US Dollar (AUD/USD) Exchange Rate: When will the Fed Raise?

The Australian Dollar to US Dollar (AUD/USD) Exchange rate has experienced a volatile week trading between highs of 72.92 US Cents all the way down to 70.64 US Cents.

The Australian Dollar had been making some recent gains against the US Dollar with the market concerned about the timing of rate hikes from the Fed being further into the future than originally anticipated. This was due primarily to disappointing data indicators that had been released earlier this month including Retail Sales and Producer Price Index (PPI) both of which are leading traders to question the timing of the much anticipated rate hikes out of the US.

The US Federal Open Market Committee Meeting (FOMC) was Wednesday night. Vote was 9-1 with only Richmond’s Jeffery Lacker calling for a quarter percent rate increase. The FOMC has left rates again on hold at 0.25% where it has been since December 2008.

The Greenback made gains against the ‘Aussie’ following the release however as the accompanying statement provided some hope for the market on the timing of Rate Hikes.

The statement noted improvement to household spending business investment, housing sector improvement with the unemployment level holding steady. Consistent with previous months the key concern continues to be the inflation level which ‘runs below the committee’s longer-run objective’. The Fed however reiterated that they expect inflation to rise gradually toward its 2 percent goal in the medium term.

The Fed noted that ‘The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.’

In economics, the Phillips curve shows a historical inverse association between rates of unemployment and subsequent rates of inflation that result in the economy. This meaning, a decrease in the unemployment rate or improved levels of employment in the US economy will correlate with higher rates of inflation.

Market analysts have interpreted the accompanying statement to indicate that the timing of the rate hike is likely to be the December FOMC meeting.

‘The FOMC statement shows the Fed has become less concerned about global risks feeding back into the U.S. economy….In short, then, the December hike now hinges on the next two employment reports. Some combination of payrolls, unemployment and wages signalling continued improvement will be enough. We’re leaving December as our base case, though it is by no means a done deal.’ – Ian Shepherdson, Pantheon Macroeconomics

Last night provided mixed economic data for the US with a positive result in Unemployment claims with a reduction in the number of claims for the week at 260k down from 264k last week and a reduction to their Advance Gross Domestic Product (GDP) figure at 1.5%, well down from the previous result and a disappointing result for traders who are hungry for positive data indicators to provide them with validity to the concept of a December Rate Hike.

The Australian Dollar to US Dollar Exchange Rate is currently trading at 70.84 US Cents at 9:00 Am AEST today.