Uncertainty about Future US Policy Pushes AUD/USD Exchange Rate Higher
There hasn’t been much high-impact news from Australia recently, with contrasting messages from the US providing the greatest impetus for AUD/USD movement.
Comments made yesterday by US Treasury Secretary Steven Mnuchin at the World Economic Forum in Davos, seemed to indicate a weaker US Dollar was acceptable to the Trump administration, with Mnuchin saying it was ‘not a concern of mine.’
His comments, however, were later contradicted by US President Donald Trump when he stated:
‘The Dollar is going to get stronger and stronger and ultimately I want to see a strong Dollar.’
These contrasting messages have increased uncertainty among US Dollar traders, which has had the knock-on effect of raising demand for the Australian Dollar.
Doubts over TPP’s Benefit to Australia Fail to Prevent AUD/USD Advance
As Australia Day celebrations get underway, the only notable economic news is that the country will be part of the Trans-Pacific Partnership (TPP) in 2018.
While some countries are predicted to see major gains from the agreement, economists suspect that Australia could only see small benefits.
Looking at the effects of the deal on the Australian economy, economists Paul Dales and Kate Hickie from Capital Economics said:
‘Prime Minister [Malcolm Turnbull] used data from the Peterson Institute to declare that the TPP will boost Australia’s real national income by AU$12bn by 2030. Now AU$12bn sounds a lot but, relative to the size of the economy, it’s not. It amounts to just 0.5% of real national income. That’s smaller than the projected boost to the incomes of the other 10 nations [involved in the trade deal].’
Despite the pair’s misgivings, the consensus opinion is that Australia will still benefit from the TPP in the long-term.
US Dollar to Australian Dollar Exchange Rate Slides on USD Investor Jitters
The US Dollar has lost ground to the Australian Dollar today, shedding gains that were triggered by Donald Trump’s ‘strong Dollar’ comments.
The main concern among USD traders is that Trump’s Davos speech today could put the US at odds with the rest of the world.
The President is expected to discuss protectionism and potentially hostile trade measures with the rest of the world.
While these measures could temporarily boost the US economy and decrease the US trade deficit, they also risk the US descending into a trade war.
Trump’s Davos Speech may Trigger Australian Dollar to US Dollar Slump
Before the weekend, the Australian Dollar may fall sharply against the US Dollar when Donald Trump makes his main Davos speech later today.
If Trump takes a combative stance with the rest of the world, the US Dollar may appreciate on trader optimism, regardless of the long-term impacts.
The exact content of Trump’s speech is unknown, however, so it is entirely possible that the President may inadvertently weaken the US Dollar with his remarks. In this case, the AUD/USD exchange rate could rise even further.