Continued US Growth and Political Jitters Leave Australian Dollar to US Dollar (AUD/USD) Exchange Rate Stronger
Despite rising demand for safe haven currencies this week, the US Dollar (USD) has been unable to benefit. In fact, the Australian Dollar to US Dollar (AUD/USD) exchange rate climbed back from its worst levels on Friday morning.
Since opening this week, AUD/USD has trended with an upside bias as the Australian Dollar (AUD) attempts to climb against a weaker US Dollar.
Still, the Australian Dollar is notably weaker overall. On Thursday evening, AUD/USD touched on an interbank low of US$0.70. This was the worst AUD/USD level since February 2016 – well over two years ago.
The Australian Dollar stabilised slightly on Friday, as investors returned to the risk-sensitive currency amid hopes for US-China trade developments in the New Year, as well as lasting US Dollar weakness.
Australian Dollar (AUD) Exchange Rates Edge Away from Lows on Trade Hopes
The Australian Dollar (AUD) has trended with an upside bias versus the US Dollar (USD) for most of the week, but the currency is still broadly weak overall and is on track to end 2018 relatively close to its worst levels all year.
Months and months of trade tensions between the US and China left the Australian Dollar tumbling in the second half of the year.
On top of this, rising signs of a slowdown in China’s economy, as well as weakening commodity prices, have put additional pressure on the ‘Aussie’.
China is Australia’s biggest trade partner, and Australia is a trade-heavy nation, so this has left the Australian Dollar extra sensitive to weaker Chinese data and commodity news.
Nevertheless, some analysts suggest the Australian Dollar could be undervalued.
According to Patrick Bennett, Foreign Exchange Strategist at the Canadian Imperial Bank of Commerce, it’s still a ‘bit early’ to buy the ‘Aussie’ against the US Dollar, but he noted that overall ‘The Australian currency is very undervalued at these levels.’
US Dollar (USD) Exchange Rates Weak on Growth Fears and Mixed US Data
The US Dollar (USD) briefly saw a jump in demand in the middle of the week, helping it to push AUD/USD to its worst levels all year on Thursday evening.
However, overall this week the US Dollar’s appeal is limited due to concerns that the US economy will slow in 2019, as well as market uncertainties about an ongoing US government shutdown.
Even as the US Senate returned on Thursday, the impasse over the issue of US President Donald Trump’s controversial border wall plan continued.
It is now expected that the US government shutdown will last into 2019, when the House of Congress will reconvene with a Democrat majority after this year’s mid-term elections.
On top of this, Thursday saw the publication of CB’s December US consumer confidence survey. The data showed confidence had unexpectedly slumped to 128.1 from 136.4.
This was the lowest print in the report since July, and the sharpest fall in the gauge for 41 years. It marked the latest sign that US citizens were losing confidence in the economic outlook.
Australian Dollar to US Dollar (USD) Exchange Rate Investors Anticipate Data and US Political Developments
Markets will be back from the holiday period in full next week, with influential US data due to be published throughout as well as some notable Australian figures.
US Dallas Fed manufacturing data from December will be published on Monday – New Year’s Eve – and more data will be published Wednesday through Friday including US PMIs and Non-Farm Payroll job stats.
The most notable Australian data will be Thursday’s TD-MI inflation gauge for December, followed by CommBank’s PMI figures and private sector credit stats on Friday.
Possibly the biggest event next week however, will be when the US House of Congress reconvenes.
In the 2018 US mid-term elections, the Democratic Party won majority control of the House.
While investors are anxious that the Democratic Party could prevent US President Donald Trump from implementing fiscal policy, the US Dollar (USD) could strengthen if the US government shutdown finally comes to an end.
As a result, the Australian Dollar to US Dollar (AUD/USD) exchange rate will be driven largely by US data and political news in the first week of 2019.