Australian Dollar (AUD) Exchange Rate Forecast - Weaker as Retail Sales Decline

June 19, 2014 - Written by James Fuller

STORY LINK Australian Dollar (AUD) Exchange Rate Forecast - Weaker as Retail Sales Decline

The Australian Dollar retreated from yesterday’s two-month high against the US Dollar as traders embarked on a round of profit taking however currency was continuing to receive support from Wednesday’s dovish Federal Reserve policy meeting.

Unrest in Iraq is also weighing upon sentiment for the ‘Aussie’. The Pound meanwhile could see volatility if today’s public sector borrowing figures come in positively.

Key foreign exchange rates against the AUD on Friday are :

• The Pound Sterling to Australian Dollar exchange rate is up 0.07% at 1.81428.
  
The Euro to Australian Dollar exchange rate is at 1.44822.

• The Australian Dollar to Euro exchange rate is trading down -0% at 0.69050.
  
• The Australian Dollar to Pound Sterling exchange rate is at 0.55118 AUD/GBP.

The Pound Sterling weakened against the Australian Dollar on Thursday after the ‘Aussie’ currency found support from last night’s US Federal Reserve policy meeting and as UK retail sales recorded their first decline since January.

Data released by the Office for National Statistics showed that retail sales dropped last month despite a strong rise in sales of replica football kits ahead of the World Cup.

According to the data, retail sales fell by 0.5% on a monthly basis, widely matching economist expectations. Sales excluding fuel also dropped by 0.5%, slightly lower than the 0.6% fall expected. On a year on year basis sales advanced by 3.9%, a slowdown from April’s figure of 6.9% and was below forecasts for a rise of 4.3%. Yearly sales excluding fuel rose by 4.7%, down from the previous months figure of 7.7% and just under the 4.8% figure expected by analysts.

The data also showed that there is little sign of inflationary pressures upon the UK economy as average prices fell in May.

“Average prices of goods sold in May 2014 showed continued deflation of 0.7%, fuel once again providing the largest contribution, falling by 2.2%. Food stores were the only sector to show an increase however, this series continues to fall and is now at its lowest level since March 2006,” said the ONS.

The Pound also remains under pressure from Wednesdays Bank of England policy meeting minutes which disappointed economists as it suggested that policy makers were less hawkish regarding a rate rise than expected.

The Australian Dollar meanwhile found solid support from last night’s US Federal Reserve policy meeting statement which showed that the Central Bank will keep interest rates on hold for a sustained period, increasing the appeal of the higher yielding ‘Aussie’.

The Fed also said highly accommodative policy remains appropriate to keep recovery on track and added that additional stimulus tapering is likely if inflation rates and the labour market continue to improve.

"The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored, The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run," the Fed said in its policy statement.

The US central Bank also downgraded its growth projections to 2.2% from 2.9% in March, and announced a $10 billion reduction in bond and mortgage securities purchases, to bring the monthly total to $35 billion.

Against the US Dollar the Australian Dollar surged back above the 94 cents level following the Fed comments. The ‘Aussie’ could push even higher.

“The softness the Dollar experienced over the past few days is coming to an end. Now that the Federal Reserve’s June policy meeting is out of the way, we expect the Australian Dollar to grind higher to test the 2014 high of US$94.61 over the next few weeks,” said a currency strategist from Commonwealth bank of Australia.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Australian Dollar Forecasts Currency Predictions Daily Cur Forecasts