The Australian dollar is under pressure as US rate hike expectations lift

Getty/Jeff J Mitchell

The Australian dollar has opened the new trading week under pressure, undermined by US dollar strength as traders price in the greater likelihood of a US rate hike arriving this year.

Ray Attrill, co-head of FX strategy at the National Australia Bank, explains that it was a combination of events that saw US bond yields lift on Friday, helping to boost the US dollar.

“Janet Yellen’s appearance Friday morning appearance at Jackson Hole proved not to be the damp squib that many were expecting, though in truth much of the (sustained) reaction in FX and interest rate markets came not from her comments directly but follow up remarks by Fed vice-chair Stanley Fischer,” said Attrill in his Monday morning note.

“The Yellen remarks that initially caught the market’s imagination were that ‘I believe the case for an increase in the federal funds rate has strengthened in recent months’.

“Asked whether Fed watchers should be looking for a move in September, and possibly for two hikes this year, Fischer replied ‘what the Fed chair (Yellen) said today was consistent with answering yes to both of your questions’,” notes Attrill.

As a result of the hawkish commentary offered by the leadership of Fed, US bond yields lifted across the board, helping the US dollar index to its largest gain since late June, the immediate aftermath of the UK Brexit referendum.

The Australian dollar was not immune to the US dollar strength with the AUD/USD closing the session at .7563, down 0.68% for the session.

As at 7.50am AEST, the AUD/USD buys .7554.

AUD/USD 5-Minute Chart

Looking ahead to Monday’s trading session in Asia, there is yet again no major data releases or events scheduled to dictate direction in the Aussie, suggesting that US rate expectations, along with movements in the USD/JPY which tends to be influential on the broader US dollar index in Asia, will be influential on the Aussie today.

Beyond market movements and speculation, there will be a raft of US economic data released later on in the session including consumption and incomes figures for July, along with PCE core inflation, the Fed’s preferred gauge on measuring inflationary pressures.

Here’s the current Australian dollar scoreboard as at 7.50am AEST.

  • AUD/USD 0.7554 , -0.0009 , -0.12%
  • AUD/JPY 76.98 , -0.03 , -0.04%
  • AUD/CNH 5.0559 , -0.0053 , -0.10%
  • AUD/EUR 0.6750 , -0.0003 , -0.04%
  • AUD/GBP 0.5749 , -0.0002 , -0.03%
  • AUD/NZD 1.0448 , -0.0029 , -0.28%

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