Australian Dollar to US Dollar Exchange Rate Slips from Weekly Highs on Trade Jitters
A recovery in Australian Dollar (AUD) demand may have been short-lived, as the Australian Dollar to US Dollar (AUD/USD) exchange rate slipped again on Wednesday amid the latest rise in trade war jitters.
AUD/USD is still largely driven by trade concerns and is trending relatively closely to its worst 2018 levels. Last week saw AUD/USD slip from the interbank level of $0.74 to $0.73, but the pair edged back up slightly to 0.74 this week.
Broad weakness in the Australian Dollar has led some investors to attempt to buy the currency back from its lows in profit taking moves, but its gains have been repeatedly limited by concerns about US-China trade tensions.
At the beginning of the week, investors briefly bought the ‘Aussie’ from its lows on hopes that the US and China would see another round of trade talks, but this was short-lived as US President Donald Trump hinted on Tuesday that further trade tariffs would be levied on Chinese goods.
However, the US Dollar’s (USD) recent sturdiness could see a shift in movement if the Federal Reserve’s upcoming August policy decision surprises markets.
Australian Dollar (AUD) Exchange Rate Recovery Limited as Trade Uncertainties Persist
Australia is an international trade heavyweight with strong exports and imports to both the US and especially China – Australia’s biggest trade partner.
As a result, worsening market concerns via the escalating trade spat between the US and China has left the risky trade-correlated Australian Dollar (AUD) looking unappealing in recent months.
The Australian Dollar was only able to climb briefly this week on speculation that the US and China were to begin another round of trade talks.
However, US President Donald Trump dampened market hopes by indicating that he planned to announce further trade tariffs on US imports of Chinese goods, causing US-China trade fears to flare up once again.
The latest Australian data has been relatively unsupportive too. Australia’s July manufacturing PMI from AiG slowed considerably from 57.4 to just 52.0.
US Dollar (USD) Exchange Rates Steady as Markets Anticipate Federal Reserve Move
The US Dollar (USD) outlook has been little changed lately, as US data has continued to be generally optimistic and indicative of expectations that the US economy will perform strongly in the coming months.
While the US Dollar has been dented on occasion by US-China trade nerves, it has also benefitted from market demand for safe havens, especially due to the strong US economic outlook.
As a result of the market focus on trade protectionism and the US economic outlook, Tuesday’s generally unsurprising data had little impact on US Dollar movement.
US personal income data from June met forecasts, and June’s Personal Consumption Expenditure (PCE) price index data only fell slightly short of forecasts year-on-year.
US Dollar investors are much more focused on the Federal Reserve’s view on the outlook, which is leaving the currency steady as investors anticipate the Fed’s decision on Wednesday evening.
Australian Dollar to US Dollar (AUD/USD) Forecast: Fed Decision and Australian Data Ahead
Thursday is likely to be a busy day for Australian Dollar to US Dollar (AUD/USD) trade, as the Asian session will see reaction to the Federal Reserve’s August policy decision as well as Australia’s June trade balance results.
The Federal Reserve is expected to leave US monetary policy frozen at this week’s decision meeting, but US Dollar movement could be driven by the tone the bank takes regarding potential upcoming decisions, or the US economic outlook.
If the bank shows few signs of concern about how protectionism may impact the US economy, the US Dollar (USD) is unlikely to fall far from its recent highs against the Australian Dollar (AUD).
On the other hand, a more cautious Federal Reserve would make it easier for AUD/USD to advance in the coming days.
Australian trade balance data from June will give investors a better idea of how the economy is weathering the trade storm, so this report could be influential to AUD movement.
Towards the end of the week, the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to react to Australian retail sales stats and US Non-Farm Payroll data.