Why the Aussie Dollar is Up Against the Greenback

At the time of writing (11:15am AEST), one Australian dollar is worth 77.88 US cents.  On Thursday, it was only 77.28 US cents.

What’s caused the Aussie Dollar to go up?

The Australian dollar has gone up against the US dollar because of disappointing key data coming out of the US. This data has made the US dollar weaker.

Firstly, there was their home sales data. According to the Commerce Department, sales of new homes went down 11.4%. This was the biggest percentage drop since July 2013. Home sales are considered a ‘leading indicator’. This means when home sales change, it’s a sign of things to come.

Then there was the US Purchasing Managers’ Index. This index measures factory output in the States. It also measures important statistics like new orders, employment, and delivery times. In April the PMI went down to 54.2, from 55.7 in March. This suggests that the US economic recovery might be slowing down.

Where has the AUD/USD pair gone lately?

The Aussie dollar has been a bit all over the place recently. It’s lost around 1.24% for the month to date, with a high of 78.74c and a low of 75.8c.


Source: Google Finance [Click to enlarge]

A lot has happened over the past month that has influenced this currency pair.

On April 7, the Reserve Bank decided to keep interest rates steady. This boosted the Aussie dollar by around 1% right after the announcement. But by the end of the day, speculation about future rate cuts made it go back down by about 0.5%.

On the 14, the US Census Bureau released their monthly retail sales report. It showed weaker than expected growth. This helped to boost the Aussie dollar by about one cent over the next day.

Very early Tuesday morning our time, RBA governor Glenn Stevens made a speech at a business lunch in New York’s Financial District. He said that interest rate cuts were definitely on the table. On Tuesday, the Australian dollar went down against the US dollar by about a cent.

But then on Wednesday, the ABS released the latest CPI data. This showed a higher than expected rise in inflation. That caused analysts to change their mind about the likelihood of an official interest rate cut. Annette Beacher, head of Asia-Pacific research at TD Securities, said, ‘Wednesday’s ever so slightly higher than expected CPI report dampened enthusiasm for a near-term RBA rate cut.’ Commonwealth Bank [ASX:CBA] currency strategist Joseph Capurso pointed out that the inflation numbers were important, because the RBA specifically considered them in the last interest rate decision. The same (or lower) interest rates would push the Aussie dollar down.

Eva Mellors,
Contributor, Money Morning

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