The Australian dollar finished lower the last week, breaking sharply on rising expectations for a U.S. interest rate hike at the Fed’s next meeting on March 15.
Strong U.S. economic reports and continued hawkish remarks from U.S. Federal Reserve officials were the catalysts behind rising U.S. Treasury yields and greater demand for the U.S. Dollar.
Fed's Chairwoman Janet Yellen was hitting the newswires on Friday, noting that a rate increase at next meeting "would likely be appropriate" if Fed determines that data on employment and inflation are continuing to move in line with expectations.
The key headlines were that the pace of tightening likely to be faster this year than in 2015 and 2016, the employment goal "essentially met" and inflation "moving closer" to 2 percent target while risks to growth, including economic conditions abroad, have receded and that developments since mid-2016 support view that Fed is on track to reach goals.
The AUD/USD reached its lowest level since February 1 last week, closing at 0.7595, down 0.0073 or -0.95%. As of Friday’s close, the market is pricing in a 90% chance the central bank will raise rates at the March meeting, up from around 30% at the start of the week.
In other news, Australian Bureau of Statistics reported that Australia’s fourth-quarter gross domestic product rose at a 2.4 percent annual pace, beating an expected gain of 1.9 percent.
Additionally, the ABS also reported that Australia’s trade surplus dramatically shrunk by almost two-thirds. The report showed Australia exported around $1.3 billion worth of goods and services more than it imported in January.
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