Strong start to 2017 for Aussie dollar

24 January 2017

The Australian dollar remained flat against most major trading partner’s currencies across the course of the week. However, since the turn of the New Year the Australian dollar has been one of the strongest performing major currencies in the world.

The US election, coupled with the US federal reserve’s decision to increase interest rates, triggered the US$ to rally into the New Year, pulling the Australian dollar lower. However, despite 2017 still being in its infancy the Australian dollar is currently 3US¢ higher than at the close of 2016 - currently trading 75US¢. Lower than expected US market labour figures released at the start of January, helped bring the Australian dollar higher against the US dollar. Furthermore, rising iron ore prices have helped further support A$ - Australia is the second largest producer of Iron ore behind China.

The Australia dollar march appears to have lost some momentum over the course of the week following the inauguration of Donald Trump but also as forecasts anticipate a poor inflation figure to be announced this week. The Reserve Bank of Australia inflation target is set a 2%; annualised inflation is forecast to be around 1.6%. The sentiment in the market is that should below-target inflation occur the Reserve Bank of Australia will look to reduce interest rates, which would undoubtedly weigh on the A$.

Polices outlined by Donald Trump, around increasing infrastructure expenditure will likely boost US inflation and could prompt further interest rate hikes in the US, further strengthening the US dollar over the course of 2017. Over the next few weeks there are a number of key dates which will directly impact the trade of the Australian dollar against most major trading partners.

Key dates:

Wednesday 25th January:

  • Australian Inflation data released – (Consumer Price Index)
  • The Supreme Court will give its judgement on Article 50 – (Brexit)

Tuesday 7th February:

  • Reserve Bank Australia Board Meeting – (Monetary Policy Decision)

Wednesday 22nd February:

  • US Federal Reserve Board Meeting minutes released -  (Monetary Policy Decision)

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