The Australian Dollar has made fractional gains against the US Dollar, although this could be considered the calm before the storm of Donald Trump’s inauguration this Friday.
Much of this week’s US Dollar movement has been caused by the Federal Reserve, with policymakers raising the prospect of a string of US interest rate hikes in 2017.
Last week saw an overall appreciation in the Australian Dollar US Dollar exchange rate, which rose from 0.73 to 0.74, touching 0.75 at times.
Australian Dollar Unstable as Economists Mull over Commodities Reliance
The recent movements of the Australian Dollar against the US Dollar have been broadly positive, although the underlying concern that Australia is too-reliant on mining and commodities has remained present.
While some economic forecasters like HSBC have stated that Australia has either completed or almost completed its transition from a mining-based economy to one of more varied focuses, others – like the Commonwealth Bank of Australia (CBA) – have been more cautious in their outlook.
In particular, CBA Mining and Energy Commodities Analyst Vivek Dhar has stated of recent iron ore spikes that;
‘The record surge in prices may tempt belief that we are on the cusp of another commodity boom. But the spike in the second half of 2016 is difficult to justify from any fundamental perspective and some retracement is likely’.
US Dollar Demand Raised by Fed Speeches but Trump Inauguration Could Reverse Gains
The week the US Dollar saw an initial rise on optimistic Fed commentary, though this has been kept in check by signs of a possible US-China trade war emerging from the World Economic Forum (WEF) event in Davos.
On the positive side, Fed officials such as John Williams have consistently stated that they support a gradual pattern of US interest rate hikes over 2017, raising hopes that the first such potential hike will come soon.
Less helpful, however, has been the US presence at the WEF event, with soon-to-be Senior US Advisor Anthony Scaramucci inflaming tensions between the US and China by declaring that the US could win a trade war between the two nations.
Against President-Elect Trump’s protectionist stance, Chinese President Xi Jinping has been firmly touting globalism and free trade, something that risks provoking a messy and costly clash between the two global trading superpowers.
AUD/USD Exchange Rate Forecast
For the remainder of this week, Australian Dollar/US Dollar exchange rate movement may occur as a result of Donald Trump’s inauguration on Friday.
Trump taking the Oval Office is likely to cause US Dollar turbulence, with any signs of commitment to his radical campaign promises having a high chance of eroding confidence in the US Dollar under the new Trump administration.
Other key developments will include Australia’s jobs data for December, due to show rising employment but no actual change in the unemployment rate.
The US is set to see yet more Fed speeches ahead of Friday’s inauguration, with Fed Chair Janet Yellen set to make a statement early on Friday afternoon.