Australian Dollar to US Dollar Exchange Rate Tumbles despite Week of USD Weakness
After days of political uncertainty gripping the Australian Dollar (AUD), Friday saw the Australian Dollar to US Dollar (AUD/USD) exchange rate recover from its weekly lows.
Still, despite this being the worst week in quite a while for the US Dollar (USD), AUD/USD is still on track to end the week lower.
The interbank AUD/USD exchange rate is currently in the region of 0.72.
Investors had been selling the US Dollar on Federal Reserve uncertainty and US political jitters for most of the week, but AUD/USD still fell as Australia’s latest political jitters caused even greater market uncertainty.
Australian Dollar (AUD) Exchange Rates Firm as New Australian Prime Minister Picked
On Friday, demand for the embattled Australian Dollar (AUD) finally improved again as an Australian leadership vote ended with now ex-Prime Minister Malcolm Turnbull being ousted – and replaced with Scott Morrison.
Turnbull had faced two leadership challenges, initially just barely holding on to power before being ousted by Morrison on Friday. For markets, it was a relatively optimistic outcome for this week’s Australian political mayhem.
According to Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities in Singapore:
‘PM Morrison is the most market-friendly option, having successfully negotiated through multiple portfolios such as Social Security, Border Security, and more recently presiding over a substantial improvement in the budget balance as Treasurer,’
However, while this news was generally market-positive and helped the Australian Dollar to US Dollar exchange rate to recover from its worst levels, analysts warned that the divisions within Australia’s coalition party may only continue.
Morrison has tried to downplay the chances of an early election, but if Turnbull leaves the government would cause the coalition to lose its single-seat majority.
US Dollar (USD) Exchange Rates Firm as Investors Anticipate Fed News
For most of the week, the US Dollar (USD) has been sold on fears that US President Donald Trump could attempt to undermine the Federal Reserve, as well as concerns about the stability of Trump’s Presidency amid developments in the Trump-Russia investigation.
However, demand for the US Dollar improved towards the end of the week, allowing it to more easily climb against an unappealing Australian Dollar (AUD).
On Wednesday evening, the Federal Reserve published its latest meeting minutes. The report reassured investors that the Fed was planning to hike US interest rates in September, and the Fed’s hawkish tone made analysts predict that a December rate hike was likely too.
Following that, the implementation of another round of US-China trade tariffs made the ‘safe haven’ US Dollar more appealing on Thursday.
AUD/USD recovered from its worst levels on Friday, but investors were hesitant to sell the US Dollar much as they anticipated potential upcoming Federal Reserve developments from the Central Bank symposium in Jackson Hole.
Australian Dollar to US Dollar Forecast: Political Developments in Focus for AUD/USD
While Australia’s new Prime Minister is relatively market-positive, his leadership may be shaky if the possibility remains for divisions in the coalition to worsen, or the possibility that the coalition government could lose its majority.
This is likely to leave the Australian Dollar (AUD) sensitive and volatile to political developments. With Australia’s economic calendar relatively quiet next week, the ‘Aussie’ is likely to react to political news.
Similarly, the US Dollar (USD) could remain sensitive to US political developments as well as Federal Reserve news.
USD investors are currently hotly anticipating potential comments from Fed officials at the Jackson Hole symposium. Any signs of dovishness from the bank could spark another US Dollar selloff which could help AUD/USD recover.
Next week’s most influential Australian data will be new home sales on Wednesday and building permits on Thursday.
Upcoming US Gross Domestic Product (GDP) growth projections and Personal Consumption Expenditure (PCE) inflation data is more likely to influence the Australian Dollar to US Dollar (AUD/USD) exchange rate as far as data goes.