AUD/USD Exchange Rate Falls as Risk-Averse ‘Aussie’ Struggles and Global Trade Tensions Rise
The Australian Dollar/US Dollar (AUD/USD) exchange rate fell today, leaving the pair trading around $0.6768 as the ongoing US-China trade war and fears for a potential ‘currency war’ continue to weigh on the risk-averse Australian currency.
Tensions between China – Australia’s largest trading partner – and the US became increasingly volatile following news Beijing allowed the Chinese Yuan to fall against the US Dollar to its lowest point in a decade.
Elias Haddad, a Currency Strategist at the Commonwealth Bank, commented:
‘It appears as though the policy-makers in China have engineered this weaker currency. Their motive here to let their currency weaken is to cushion the potential damage of higher US tariffs. [N]ot only do we have the trade war, now we potentially have a currency war.’
Shane Oliver, the Chief Economist at AMP Capital, was also downbeat about the Australian economy in the near-term:
‘[A drop in global trade] would see a further weakening in global growth, leading to reduced export earnings for Australia which would in turn boost unemployment, risking another leg down in house prices.’
USD/AUD Exchange Rate Edges Higher despite Rising US Economic Fears
The US Dollar (USD) has also been weakened by diminishing hopes in a positive outcome for the US-China trade deal, with traders fleeing to safe-haven currencies like the Euro.
USD traders are also becoming increasingly concerned that escalating US-China tensions could derail the US economy.
Shane Oliver, the Head of Investment Strategy at AMP Capital, commented:
‘[US-China trade tensions] could still get worse before it gets better, and the risks have gone up as China may be waiting till after the [2020] election.’
China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
Meanwhile, US Dollar traders await publication of the US ISM Non-Manufacturing PMI for July later on this afternoon, which is expected to rise from 55.1 to 55.5.
AUD/USD Outlook: Could USD Weaken After Heightened Fed Rate Cut Fears?
Australian Dollar (AUD) investors will be looking ahead to tomorrow’s interest rate decision from the Reserve Bank of Australia (RBA), which is expected to remain at 1%.
Although, a dovish commentary during the RBA’s rate statement could cause the ‘Aussie’ to sink further against the US Dollar.
‘Greenback’ traders will be looking ahead to tomorrow’s speech by James Bullard, the President of the Federal Reserve Bank of St Louis.
Fed President Jerome Powell said last week that US-China trade tensions could determine the course of monetary policy in the short term, with any indications from Mr Bullard of a possible rate cut next month proving a drag on the US Dollar.