Australian Dollar to US Dollar Exchange Rate Holds Ground as US Dollar Strength Limited
While market demand for safe haven currencies has surged since last Friday, the Australian Dollar to US Dollar (AUD/USD) exchange rate’s losses have been limited. Investors are hesitant to buy the US Dollar (USD) too much amid a lack of support in recent US data.
Last week saw mixed movement in AUD/USD. After opening the week at the interbank level of 0.69, AUD/USD climbed to a high of 0.70 for the first time in over half a year.
In the second half of the week though, a combination of a recovering US Dollar and fresh safe haven demand ultimately pushed AUD/USD back down to close the week below its opening levels.
AUD/USD continues to edge lower today, but the US Dollar’s recovery ran out of steam due to weakness in recent US data. This is even as the latest global geopolitical tensions weigh heavily on the Australian Dollar (AUD).
Australian Dollar (AUD) Tumbles as Global Geopolitical Tensions Escalate
The Australian Dollar (AUD) is a risk and trade-correlated currency that has recently benefitted from hopes of recovering global growth and trade relations.
However, at the end of last week the US ordered a shock strike on an Iranian military leader. The action led to a surge in US-Iran military tensions, with Iran heavily indicating retaliation and the US threatening further action if retaliation is taken.
The news left investors looking for safe havens. This, combined with weakness in Chinese data as well as a worsening bushfire crisis in Australia, limited AUD strength this morning.
However, this morning’s Australian data did offer the ‘Aussie’ a little support.
Australian services and composite PMI figures from CommBank beat projections. They showed that the contraction was narrower than expected, boosting hopes that growth would return to the prints.
US Dollar (USD) Exchange Rates Lack Drive Even as Markets Seek Safer Currencies
The US Dollar (USD) is a safe haven currency that is typically appealing in times of global market uncertainty.
USD has already benefitted slightly from the past week’s shock military action and fresh tensions, but its gains have been highly limited by concerns about the health of the US economy.
While the US Dollar saw a rebound after the turn of the New Year last week, its advance was short-lived due to some highly disappointing US data on Friday.
ISM’s December manufacturing PMI was expected to show improvement. Instead, it printed a deeper than expected contraction of 47.2.
According to Karl Schamotta, Chief Market Strategist at Cambridge Global Payments, the data indicated:
‘trade war-related uncertainty has actually damaged the manufacturing sector on a sustained basis and that points to weakness in GDP, particularly in the coming quarter because what you’re likely to see is an inventory drawdown as opposed to continued build.’
Australian Dollar to US Dollar (AUD/USD) Exchange Rate May Tumble on Risk-Aversion
Investors have been hesitant to buy the US Dollar (USD) amid weakness in recent US data. US Dollar weakness could continue if upcoming US ecostats remain disappointing.
US non-manufacturing PMI data and trade data will be published tomorrow and could be highly influential for the Federal Reserve and US Dollar outlooks if they surprise investors. Poor data would make it easier for AUD/USD to hold its ground.
Australian Dollar (AUD) investors will look out for Australian trade data later in the week.
However, even if the US Dollar remains weak AUD/USD may struggle to avoid further losses amid broad global military concerns.
If US-Iran tensions continue to worsen, the safe haven US Dollar is more likely to benefit even if upcoming US data is disappointing.
On the other hand, if tensions somehow lighten the Australian Dollar to US Dollar (AUD/USD) exchange rate could quickly recover much of its recent losses.