After closing 0.2% lower versus the US dollar, the Australian dollar is on the rise in the European session on Wednesday. The Aussie US dollar exchange rate is up 0.5% at US$0.6847, the daily high, at the time of writing.
The Australian dollar trended northwards amid heightened optimism that the US will delay the tariff hike due on 15th December. Tariffs on a further $100 billion worth of Chinese imports are due to take effect on Sunday. US officials have recently hinted that the tariffs could be paused. China has also said that it believes that the US won’t go ahead with the tariffs. Given that China is Australia’s principal trading partner, the Aussie dollar is considered a proxy for China. Hopes of tariffs being avoided boosted the Australian dollar.
Trade headlines overshadowed more disappointing economic data from Australia. Westpac’s consumer confidence index dipped to -1.9% from 4.5% in November. This was significantly worse than the -0.7% that analysts had forecast, as concerns over job losses rose. Poor consumer confidence goes hand in hand with weak consumer spending. This is bad news for the Australian economy and the Aussie dollar.
Inflation At 12 Month High
The US dollar is trending higher in the European session on Wednesday, just less so than the Aussie dollar. Stronger than forecast US inflation figures has lifted demand for the greenback. Consumer prices increased 2.1% year on year in November, up from 1.8% in October and ahead of analyst’s expectations and the highest level in 12 months. On a monthly basis prices increased 0.3% an even bigger increase than October Core inflation remained steady at 2.3% as expected. The strong inflation readings will boost investor optimism that the Fed could look to raise interest rates as the next move next year.
Investors will now look ahead to the Federal Reserve interest rate decision. The Fed are expected to keep monetary policy on hold. After three rate cuts across the year policy makers believe that they have done enough to support the economy. Following the strong inflation figures and following evidence of a solid labour market, investors are in agreement. According to the CME Fedwatch tool investors are pricing in a 97.8% that the Fed holds rates and a 2.2% chance of a hike. A hawkish Fed could lift the dollar.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 USD = 0.6784 AUD
Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.
Or, if you were looking at it the other way around:
1 AUD = 1.4739 USD
In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.