Australian Dollar to US Dollar Exchange Rate Struggles to Recover as Safe Haven Demand Keeps US Dollar Buoyed

Australian Dollar to US Dollar Exchange Rate Avoids Worst Levels but Remains Weak

Despite some stronger commodity prices supporting the Australian Dollar (AUD), the AUD/USD exchange rate’s recovery from Tuesday’s lows has been limited amid solid demand for the safe haven USD.

AUD/USD has lost around half a cent this week so far despite its Tuesday evening recovery from a weekly low of $0.70.

Unless risk-sentiment improves in the coming sessions, AUD/USD could be in for its first week of losses since the beginning of the month.

Investors have been hesitant to buy the relatively risky trade-correlated Australian Dollar in recent sessions, as political uncertainties in major nations have made markets more risk-averse.

This has led to some resilient strength in the US Dollar, despite this week’s US data being relatively mixed so far.

Australian Dollar (AUD) Exchange Rates Supported but Lacking in Drive

While the Australian Dollar is holding its ground above key support levels the currency lacks the drive to recover, especially with markets still hesitant to take risks amid this week’s political uncertainties.

Despite stronger prices in commodities, including iron ore, which would typically support the commodity-correlated ‘Aussie’, political news is making traders move into safer investments.

On a global level there are concerns that the UK Prime Minister could face a leadership challenge, potentially making Brexit fears worse, as well as concerns that Italy and the EU cannot agree on the issue of Italy’s budget.

US Dollar (USD) Exchange Rate Strength Limited despite Safe Haven Demand

The US Dollar (USD) has been unable to keep pushing the Australian Dollar much lower despite the market appetite for safe havens, due to concerns about how protectionist trade policies could dent the US economic outlook.

According to David Gilmore from FX Analytics, the US Dollar has been a little less appealing versus other safe havens, limiting its potential for gains against other currencies:

‘Markets are starting to wonder if the good times generated from Trump’s tax cuts and deregulation are in the rear view mirror and what’s ahead is fallout from protectionist policies, and that has started to eat into corporate earnings.’

On top of this, the US Dollar’s safe haven windfall has been limited by the latest US ecostats which have printed slightly weaker than expected.

Monday’s Chicago Fed national activity index from September fell from 0.27 to 0.17, while Richmond Fed’s manufacturing index fell short of forecasts on Tuesday, slumping from 29 to 15 rather than the expected 25.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Could Recover if Upcoming US Data Disappoints

Some notable US data will be published over the coming sessions, including US Markit PMI projections this afternoon, US durable goods orders and wholesale sales on Thursday, and lastly the latest US growth projections on Friday.

Friday’s US Gross Domestic Product (GDP) figures for Q3 has the potential to be influential if it surprises investors.

If US growth is projected to be worse than expected, the US Dollar could weaken.

On the other hand though, stronger US growth data could push AUD/USD closer to its weekly lows again.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard