Australian Dollar US Dollar (AUD/USD) Exchange Rate Muted as Geopolitical Tensions Rise
The Australian Dollar US Dollar (AUD/USD) exchange rate remains rangebound today and the pairing is currently trading at an inter-bank rate of $0.6917.
Geopolitical tensions have increased as Iran shot down a US spy drone, which impacted sentiment in the risk-sensitive ‘Aussie’.
The pairing remains under pressure ahead of next week’s meeting between US President Donald Trump and Chinese Premier Xi Jinping.
Meanwhile trade tensions have increased following comments from the Chairman of the China Banking Regulatory Commission, Guo Shuqing.
On Friday he stated that the US would ‘pay a huge price’ for the ongoing trade tensions.
Writing a piece in China’s People’s Daily, Guo Shuqing stated:
‘The US can no doubt increase tariffs on us to the extreme, but this will have very limited impact on the Chinese economy. By contrast, the US itself will be hit to almost the same degree.
‘The goal for the US in raising tariffs is to decrease the trade imbalance between China and the US, but because of Chinese countermeasures, the direct result has become uncertain and the [US action] could even backfire.’
AUD/USD Traders Expect another RBA Interest Rate Cut ‘Imminently’
On Thursday a dovish speech from the Governor of the Reserve Bank of Australia (RBA) dampened sentiment in the Australian Dollar.
In his speech, Governor Philip Lowe said the recent interest rate cut would not be enough to spark growth in Australia.
Diverting from his usual optimistic tone, Lowe stated it was ‘unrealistic’ to believe the cut of 0.25% would work on its own and called on the government to act.
Commenting on this, Kristina Clifton, Senior Economist at CBA stated:
‘Lowe’s comments signal that another rate cut is imminent. We now expect the next 25 basis point cut to be delivered in July rather than August.’
The increased chance of an RBA interest rate cut as early as next month likely weighed on the ‘Aussie’.
US Dollar (USD) Muted as Fed Abandons ‘Patient’ Approach
The US Dollar continues to remain under pressure following the dovish shift from the Federal Reserve earlier this week.
On Wednesday the Federal Reserve left interest rates unchanged as expected but dropped its ‘patient’ approach.
The US Dollar then plummeted as the bank hinted it was ready to adopt an easing bias and could cut interest rates as soon as July.
The dovish turn was due to the increased US-China trade tensions and growing domestic risks.
Australian Dollar US Dollar Outlook: Will a Dovish RBA Weigh on AUD?
Looking ahead to this afternoon, the US Dollar (USD) could fall against the Australian Dollar (AUD) following the release of the US Markit PMI composite.
If the flash PMI does not edge up by as much as forecast, it could dampen sentiment in the ‘Greenback’.
Meanwhile, the ‘Aussie’ could slide on Monday following a speech from the RBA Governor Philip Lowe.
If Lowe talks about monetary policy and mentions the risks AUD faces thanks to the current geopolitical tensions, the Australian Dollar US Dollar (AUD/USD) exchange rate could fall.