Australian Dollar to US Dollar (AUD/USD) weakens as investors predict a US Rate Hike for Christmas

The Australian Dollar to US Dollar (AUD/USD) exchange rate has continued to weaken this week in expectation of a US Federal Reserve rate rise in December.

At 0630 AEDT on Wednesday, the currency was trading at 0.7030 cents, down from 0.7065 on Tuesday.

Falling to its lowest point in almost six weeks yesterday, The ASX is also weighing heavily on the dwindling “Aussie”. As concerns grow amongst investors, banks and property trusts over recent housing data and the looming interest rate hike in the United States.

Westpac senior currency strategist Sean Callow said the Aussie was consolidating in a lower range after it was knocked down on Friday night by much stronger-than-expected US jobs data. “It’s currently about (one US) cent below the level it was just ahead of the payrolls report,” he said, going on to add ” it’s not showing any signs of returning to that level any time soon because the pricing for a Fed funds rate hike in December is still hovering around 70 per cent.”

Official figures released out of Australia’s largest trading partner China yesterday, adding further fuel to the fire, raising concerns that further local monetary easing may be on the cards in order to ease deflationary pressures. As signs of decreased demand from the world’s second largest economy can have a negative spill-over effect on Australia’s economy. Such implications may cause the RBA to act by decreasing interest rates.

CPI (consumer price index) released by the Chinese National Bureau of Statistics yesterday indicated that the price paid by consumers for a basket of goods and services rose 1.3 percent in October from a year earlier, compared to the 1.5 percent pace estimated by economists. This is the lowest CPI reading in six months, down from 1.6 percent in September. The producer-price index also fell 5.9 percent, its 44th straight monthly decline.

Today China is expected to release its October report on Industrial activity; which reports on changes in the total inflation-adjusted value of output produced by manufacturers, mines, and utilities. An indication of further slow-down in this sector is a real concern for commodity driven ”Aussie” and raises chances of further RBA monetary easing.

Tomorrow the Australian Bureau of Statistics is due to release local employment figures for October. Economists predict jobs growth may slow due to soft economic conditions and the jobs growth from the labour services sector will weaken amid a decline housing activity and lower currency. Australia’s labour market is expected to add 15,200 jobs while the unemployment rate is predicted to remain at 6.2%.

We can expect to see further volatility in the latter part of this week with several high tier releases due out of international markets as well as scheduled addresses by policy makers – Wheeler, Carney and Draghi.

In order of release: 

Out of the UK tonight, official employment figures are expected to show an increase in jobless claims in October. Later this evening Bank of England (BoE) Governor Mark Carney will speak in London to discuss last week’s inflation report. The report suggested interest rates would stay lower for a longer period, leading Carney to hint that a rate rise could still be two years away.

Mario Draghi is also due to address audiences in London later this evening. It is expected investors will be listening carefully for further explanation on Draghi’s suggestion that further interest rate cuts and quantitative easing may be required to prevent a renewed economic slump in the Eurozone.

Following these addresses the back end of the week will be all about the US Dollar with US Retail Sales, PPI and Consumer Sentiment all due for release Friday. It is expected scheduled addresses by US Fed Chair Janet Yellen and FOMC member Evans early Friday morning will also be heavily scrutinised for any hint of a Christmas rate hike from the US Fed.