The Australian Dollar US Dollar 2016 exchange rate has edged higher this week due to weakness in the US Dollar, landing it more comfortably near the level of 0.72. Interestingly, 0.72 is the level AUD USD began 2016 at but the pair could easily see more considerable falls in 2017 depending on US inflation.
Australian Dollar (AUD) Benefits from US Dollar (USD) Selloffs
Demand for the Australian Dollar has improved slightly in the last week despite a large number of downside factors in AUD trade as 2017 draws closer. These downsides include expectations for higher US inflation and speculation of more easing from the Reserve Bank of Australia (RBA).
The main reason for the Australian Dollar’s improvements this week has been due to weakness in the US Dollar. As USD was sold from its best levels in a mix of profit taking and corrective trade, the risky Australian Dollar benefitted.
On the subject of risk, this week has also seen investors indulging in risk-correlated assets in one final 2016 risk-rally. In particular, the Australian Dollar was bolstered by an increase in prices and demand for iron ore, Australia’s most lucrative commodity export.
US Dollar (USD) Sold from Highs, Fresh Data Fails to Offer Support
The US Dollar was sold from its recent highs on Thursday after it saw a brief rally on Wednesday. A combination of corrective trade and profit taking stances were the main reasons for the US Dollar’s falls this week as traders perceived the ‘Greenback’ as having been overbought.
Thursday’s US data may also have weakened the US Dollar slightly as figures came in below expectations.
November’s US advance goods trade balance results worsened from US$-62b to US$-65b meaning the nation’s deficit widened by 5.5%.
Meanwhile, the latest jobless claims results also disappointed slightly. The number of new jobless claims came in at 265k which was close to expectations of 264k, but the number of continuing claims worsened from 2,039k to 2,102k.
Australian Dollar US Dollar 2016 Forecast: USD Could Strengthen in 2016’s Final Trade Day
Friday will see the final trade session of the year and is likely to see investors adjusting their position ahead of what is expected to be a turbulent 2017.
The long-term underlying trend in AUD USD is bearish, with investors predicting that US President-elect Donald Trump will introduce inflation-boosting fiscal policy when he takes office in late-January. This could see traders taking AUD USD lower as 2017 approaches.
Higher US inflation means higher US interest rates from the Federal Reserve – which has already suggested that three rate hikes are possible in 2017.
This would lead to lower yields from Australian Dollar investment, especially if the Reserve Bank of Australia (RBA) resumes its easing cycle as some analysts predict.
In the shorter-term, the Australian Dollar could continue to advance in the coming weeks if US data fails to impress or if Australian data appears to keep the case for looser RBA rates at bay.
AUD USD Interbank Rates
At the time of writing, the Australian Dollar US Dollar 2016 exchange rate trended in the region of 0.72 while the US Dollar Australian Dollar exchange rate trades at around 1.39.