Australian Dollar to US Dollar (AUD/USD) Exchange Rate Drops as US-China Trade Relationship Improves

Signs of Reduced Tensions in US-China Relations Cause AUD/USD Exchange Rate Losses

The Australian Dollar to US Dollar exchange rate (AUD/USD) has fallen back from the highs seen yesterday following a seeming change of attitude in US-Chinese relations.

Given the current shortage of Australian economic news, the latest AUD/USD losses are down to hopes that the two trading partners may avoid a trade war.

This isn’t an assured outcome, but even the possibility of the avoidance of conflict has been enough to push the US Dollar up and the Australian Dollar down.

Fears over Australian Collateral Damage from Trade Clash Drag AUD/USD Exchange Rate Down

The Australian Dollar’s poor performance against the US Dollar today is largely down to USD strengthening and residual concerns about the Australian economy.

Australia exports to both China and the US, but there is a worry that by siding with either nation there will ultimately be losses for Australian exporters.

Stressing the importance of not taking sides in the debate, University of Canberra Assistant Professor Bruce Baer Arnold said:

‘Joining in this cascade of retaliation will jeopardise economic growth, foster political unrest in developing economies and penalise consumers.’

US Dollar to Australian Dollar Exchange Rate Rises 0.4% as Negotiators Try to Avert Trade War

The US Dollar to Australian Dollar exchange rate saw a healthy rise today following the news that there are ongoing efforts to prevent a US-China trade disagreement.

The US enacted tariffs against China last week, with the Chinese government quickly responding by outlining counter-tariffs.

Since then, however, the US Dollar has appreciated after Chinese Premier Li Keqiang spoke of the need to talk instead of act rashly:

‘With regard to trade imbalances, China and the United States should adopt a pragmatic and rational attitude, promote balancing through expansion of trade, and stick to negotiations to resolve differences and friction.’

Australian Dollar to US Dollar Exchange Rate (AUD/USD) Forecast to Advance on US GDP Slowdown

There will be little high-impact Australian data to watch out for this week, so US Dollar movement could strongly influence the AUD/USD exchange rate.

The week’s main US data will be a finalised GDP growth rate reading on Wednesday, followed by spending data and a consumer confidence flash reading on Thursday.

Current estimates are for the quarter-on-quarter US GDP growth rate to have slowed from 3.2% to 2.7%; such a result could devalue the US Dollar and raise Australian Dollar demand.

There could be further USD losses on Thursday, should there be reports of falling US personal income and spending levels in February.

Weaker readings here could lower confidence among USD traders as it might mean that the Federal Reserve will hold off on any more near-term interest rate hikes.

There may be a late-week saving grace for the US Dollar on Thursday if the University of Michigan’s finalised consumer sentiment score rises, as is forecast.

More broadly, the US Dollar could appreciate over the week if there are clearer signs a US-China trade war will ultimately be averted.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon