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AUD/USD Exchange Rate Discombobulated as US Government Awakens

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Iron Ore Crash Leaves AUD/USD Exchange Rate in US Dollar’s Favour

The Australian Dollar US Dollar (AUD/USD) exchange rate found itself on the back foot on Tuesday, sliding in the early hours as commodity prices fell.

Commodities – most notably iron ore – took a sharp fall, with iron ore futures dropping almost -4% overnight.

This was predominantly due to an ongoing glut in supply, with Australian production largely contributing.

Many analysts have also pointed to the recent ‘America First’ trade tariff measures by the US as another cause for concern for Australian trade, with markets expecting the tariffs to extend beyond washing machines and solar panels to encompass a wide range of items.

This would give US businesses a competitive edge against foreign firms, increasing employment and promoting growth, but it would also limit exports from the likes of Australia and China.

Viraj Patel, Strategist at ING group noted a similar argument, stating:

‘An added headwind is the spectre of US steel tariffs – President Trump now has the Commerce Department’s Section 232 report and has 90 days to decide on recommended policy actions (the aluminium report will be released on Monday)’.

US Government Reopens, AUD/USD Exchange Rate Tumbles

US President Donald Trump has signed a bill reopening the US government and ending a 3-day shutdown that was triggered, in part, by differences over immigration.

Late on Monday members of the House of Representatives voted to approve the bill, a ‘continuing resolution’ that will keep the US government funded and running for three more weeks.

Democratic Senator Sherrod Brown of Ohio shared his optimism on the news, stating: ‘It’s good news for the country’, whilst Republican Senator Susan Collins of Maine stated: ‘Today is a good day to celebrate. When government shuts down it represents the ultimate failure to govern’.

This news gave the US Dollar (USD) a bit of a lift, but markets remain sensitive to the fact that core differences remain and that this is mostly a short-term solution.

Looking ahead, markets will be keen to see exactly how the government handles negotiations over DACA and immigration, particularly with the massive division between both sides.

AUD/USD Exchange Rate Forecast: US Markit PMI’s and GDP Readings Ahead

A run of notable US domestic data releases could put the AUD/USD exchange rate under pressure this week.

Markets will be keen to assess Wednesday’s US Markit manufacturing, services and composite PMI readings, with analysts expecting January’s flash composite reading to fall from 54.1 to a score of 53.7 – an event that could slightly knock confidence in the US Dollar.

Friday will see the release of the Q4 quarter-on-quarter readings on US gross domestic product (GDP), however, with markets expecting the headline adv figure to slip from 3.2% to 3.0%.

Any slowdown could hurt investor demand in the ‘Greenback’, whilst a better-than-expected reading would bode extremely well for the US economy and likely send AUD/USD tumbling.