The Australian Dollar to US Dollar exchange rate had climbed to its highest level since April before the US Presidential election shockingly veered towards Trump. As a result of Trump’s win, AUD/USD plummeted to a weekly low of 0.75 and continued to trend below the week’s opening level of 0.76 throughout Wednesday’s European session.
Australian Dollar (AUD) Down across the Board as Investors Head to Safer Havens
Investors in Asia and Europe woke up to a shock on Wednesday morning, as unorthodox US Presidential candidate Donald Trump succeeded in winning the US Presidential election despite markets pricing in a Clinton win.
This meant the risk-correlated ‘Aussie’ plummeted despite having previously soared past levels of key psychological resistance before the results began to come in.
Investors around the globe rushed away from risk-correlated currencies into ‘safe havens’ in an effort to protect their assets from volatility and potential loss.
Despite otherwise optimistic upside factors in the Australian Dollar in recent weeks, this market panic completely undermined the risky ‘Aussie’.
US Dollar (USD) Weakens on Trump Win but Benefits from Risk-Off Rush
While the US Dollar suffered much of the brunt of the market’s shock at Donald Trump’s US election win, it definitely outperformed risk-correlated currencies throughout the day, which were in a much bigger state of panic.
As Trump will directly affect the US economy and the next four years of US trade and foreign policy, it’s no surprise that concerns about his typically protectionist stance have hit USD’s defences and caused drops in bets of a December Federal Reserve rate hike.
However, emerging markets and commodity markets are more likely than the US itself to suffer from being cut off by Trump’s potential protectionism.
This has meant that despite lower sentiment towards the US Dollar, the ‘Greenback’ was easily in a better position on Wednesday than risky commodity-correlated currencies like the Australian Dollar.
Demand for the US Dollar also recovered slightly after a surprisingly ‘Presidential’ acceptance speech from Trump, which eased market jitters from their worst.
AUD/USD Exchange Rate Forecast: How Soon can we Expect Markets to Cool?
The Australian Dollar to US Dollar exchange rate is forecast to trend on the downside for the remainder of the week.
AUD/USD had returned to near the week’s opening levels after Tuesday night’s surge and subsequent plummet. After an extremely volatile few hours for the exchange rate, markets seemed content leaving the exchange rate above 0.76 despite the concerns weighing risky currencies down.
However, volatility is likely for at least a few days as analysts comes out and investors come to terms with the possible future of the US economy.
Some analysts have already noted that the market shock is smaller than some had forecast, meaning movement in the markets could shift considerably in coming days depending on speeches from Trump – or simply a return to normalcy.
A lack of key domestic factors for the Australian Dollar in the coming days means the currency will be heavily limited by low risk sentiment, but this too is likely to cool in the coming weeks.
With the future of Federal Reserve monetary policy also in question, December could be a good month for the ‘Aussie’ as US investors look to make gains from higher yielding currencies.