The Australian Dollar (AUD) exchange rate made gains against the Pound (GBP) and advanced to its highest level in 2-weeks against the US Dollar (USD) as investors raised their bets that US policy makers will want to leave interest rates at a record low on Wednesday.
The two-day long Federal Reserve policy meeting concludes on Wednesday and market attention is fixed on the outcome.
With concerns over the global economy continuing to persist thanks to softer than forecast data out of the US and more dire data out of the Eurozone investors are now expecting Fed policy makers to leave interest rates unchanged until October 2015.
Policy makers are also forecast to announce the ending of its monthly quantitative easing programme.
‘The key is going to be the tone of the Fed’s statement, and I think the tone will be extremely cautious. In the near term the US Dollar is going to be heavy,’ said a economist at Barclays Plc.
Sentiment towards the US currency was also softened after data released on Monday showed that the service sector in the world’s largest economy grew at its slowest pace in six months in October as business confidence and order growth slowed. A separate Pending Homes Sales report also disappointed the market.
BoE Comments Weaken Pound
The Pound Sterling was also weakened on Tuesday after Bank of England deputy governor Minouche Shafik said that the bank would need to see more signs of building price pressures before it raises interest rates from the current record low levels.
‘We would need to see more of the data pointing in the same direction in terms of price pressures- particularly in terms of wages and unit labour costs before raising interest rates. In terms of sustained domestic inflationary pressures, that’s going to be the ultimate test,’ said Shafik in an interview with the Financial Times.
The minutes of Octobers BoE policy meeting showed that the majority of the bank’s policy makers were in favour of leaving interest rates unchanged at the record low level of 0.5% and that most were firmly against a rate hike now.
The weakness of the Eurozone and poor wage growth were said to be the main causes for the banks hesitation.
Australian Dollar Exchange Rate Forecast
The AUD/USD exchange rate could give up some of its earlier gains later in the session if the latest US Durable Goods and CB Consumer Confidence data comes in positively. Weaker figures however and the ‘Aussie’ is likely to make further advances.
With no economic data due for the Pound, we can expect the AUD/GBP to experience little movement throughout the rest of the session.
UPDATE
The Australian Dollar to Pound Sterling exchange rate is currently trending in the region of 0.5505.
The Australian Dollar to US Dollar exchange rate is currently trending in the region of 0.8881.
As traders prepare for the Federal Reserve rate decision, due to be published later on Wednesday, the US Dollar has softened. With Tuesday’s US data throwing up some disappointing results, futures traders are speculating that the Fed will continue with its quantitative easing policy for at least another month.
With sentiment towards the US Dollar swinging into negative territory, high-yielding assets are reaping the rewards. The Australian Dollar, as a higher-yielding currency, is one such beneficiary.
Sterling is holding relatively steady as traders await the British data due for publication later on Wednesday morning.
Australian Dollar (AUD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Australian Dollar,
,US Dollar,0.8821 ,
Australian Dollar,,Pound Sterling,0.5480,
Australian Dollar,,Euro,0.6950 ,
Australian Dollar,,New Zealand Dollar,1.1179 ,
US Dollar,, Australian Dollar ,1.1336 ,
Pound Sterling,, Australian Dollar ,1.8249 ,
Euro,, Australian Dollar ,1.4390 ,
New Zealand Dollar,, Australian Dollar ,0.8944 ,
[/table]
