• Australian Dollar (AUD) rallies 2.5% across the week hitting the highest level since December 2018
  • Fed’s change to policy framework is boosting risk sensitive AUD whilst dragging on US Dollar (USD)
  • US personal income and spending data point to economic recovery remaining on track
  • Australian inflation due on Monday

The Australian Dollar US Dollar (AUD/USD) exchange rate is surging higher on Friday. The pair is extending gains for a fourth straight session and it is aiming for gains of 2.5% across the week.

At 13:30 UTC, AUD/USD trades +1.1% at US$0.7340 just shy of the US$0.7350 reached earlier in the session, a level last seen in December 2018.

The Federal Reserve’s new monetary policy framework, which was announced yesterday by Federal Reserve Chair Jerome Powell has caused the US Dollar to sell off. The Fed will adopt a less rigid approach to controlling inflation, allowing inflation to run over the 2% target to make up for extended periods where it has undershot the target level.

The prospect of 0% or near 0% rates for a longer period of time than initially expected has dragged on the US Dollar whilst boosting risk sentiment. Stocks are climbing and the risk sensitive Australian Dollar is powering northwards.

Upbeat US data is adding to the risk on mood. The Commerce Department revealed that US personal income unexpectedly increased in July as the economy continued to reopen and employees returned to work.

Personal income jumped by 0.4% in July after falling 1% in June. Analysts had been expecting income to dip by -0.2%.

The same report also showed a continued surge in personal spending, which jumped by 1.9% in July after spiking by 6.2% in the previous months. Expectations had been for spending to jump by 1.5%.

Looking ahead University of Michigan consumer sentiment will be in focus. Analyst are forecasting sentiment to hold steady. However, a Confederation Board consumer confidence release earlier in the week showed that morale plummeted to a new pandemic low.

There is no further Australian Dollar data this week. Investors will look ahead to Australian inflation and Chinese manufacturing numbers on Monday which could provide further direction to the currency.