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Will AUD/USD Fall on a Federal Reserve Rate Hike?

14 June 2017 by FC Exchange

On Tuesday the AUD/USD exchange rate closed trading flat, entering a holding pattern ahead of the US Federal Reserve interest rate announcement expected in Wednesday’s Stateside session.

In addition, the Aussie dollar recently retreated from a multi-week high versus the greenback as a result of softer iron ore prices. Iron ore is Australia’s largest commodity and so any decline in its value can create AUD weakness. However, banking giant Deutsche Bank has suggested that although iron ore prices are falling, the general outlook shouldn’t be too gloomy as China—Australia’s largest trading partner—should still require iron ore for its large infrastructure plans.

Research analyst at Deutsche Bank Grant Sporre said: ‘Although it’s difficult to paint an outright bullish picture for Chinese steel demand, we do not see an outright collapse.’

Markets Await US Federal Reserve Rate Hike

Meanwhile, the Australian dollar could also experience some weakness if the US Federal Reserve decides to increase interest rates once again. The Fed is expected to hike the level by 25 basis points which will bring rates to 1.25%. In the long-term, the Federal Open Market Committee (FOMC) are expected to heighten rates to around 3.0%.

JP Morgan economist Michael Feroli commented: ‘The expectation of a rate hike… is widely held, and has been reinforced by the most recent round of Fed communications.’

Fed Chief Janet Yellen will hold a press conference following the announcement and it’s likely that investors will want to pay close attention to any discussions on inflation and further hikes this year.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate

The Australian dollar to US dollar exchange rate is currently trading at 0.7577.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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