Today, and most likely until the end of the week, the attention of traders will focus on the speech of the Fed Chairman Janet Yellen at the annual economic forum in Jackson Hole that is planned for Friday.
Yesterday and since the opening of the trading week, there has been a slight weakening of the US dollar. However, yesterday's positive data on the housing market in the United States published at 17:00 (GMT +3), allowed the US dollar to recover some of the previously lost positions on the foreign exchange market. Before Yellen's speech the US dollar is rising against the 10 major currencies. The WSJ dollar index, which reflects the value of the US dollar against a basket of 16 currencies, rose by 0.07% to 85.76.
Participants expect Yellen to give guidelines regarding the Fed's next increase in interest rates. However, most likely, J. Yellen will talk in general words about the current state of affairs, the favorable situation on the labor market and stable inflation in the US. J. Yellen will hardly mention a rate hike in September, and is likely to say again that the interest rate hike in US this year is still possible. Amid the weak US data on labor productivity and GDP growth in the 2nd quarter, the Federal Reserve is unlikely to go ahead with a rate hike in the coming months, despite the active verbal intervention by the Fed on the possibility of an early rate hike.
A neutral tone of J. Yellen's speech can be understood by investors as a signal of the inclination to a milder policy, which would put downward pressure on the US dollar. If J. Yellen gives out even a hint of the possibility of a rate hike in September, the US dollar will strengthen sharply on the currency market.
At the same time, Australia's economy has recently shown signs of slowing growth. For example, the construction of engineering structures has continued to decline. In the 2nd quarter the reduction of civil engineering structures was the biggest in almost 16 years. Last week Moody's agency downgraded the forecasts for Australia's four largest banks' ratings to negative from stable, justifying this decision by a sluggish growth in profits due to slow wage growth, low interest rates, strong competition and growing household debt.
Earlier in August, the RBA issued a forecast that inflation will remain outside the target range of 2% -3% until December 2018. Low inflation will be a major factor in the decision on interest rates in Australia. Australia's central bank lowered the rate to a new record low of 1.5% earlier this month, and many economists expect further rate cuts. This will be a negative factor for the Australian dollar in the medium term.