Progress of Multinational Trade Deal Pushes AUD/USD Exchange Rate Higher
The Australian Dollar has made moderate gains against the US Dollar today, although this is mainly down to high uncertainty among USD traders.
In Australia, the headline news is that the country has signed up to the Trans-Pacific Partnership (TPP), a multinational trade agreement that is finally nearing completion.
The TPP almost foundered in 2017 when the US withdrew from the deal, but has since been restored without the US as a member.
There are estimates that the TPP deal may only provide a minor benefit to the Australian economy, but the general attitude is that Australia is better off in the deal than out of it.
Demand for US Dollar (USD) Drops after Mnuchin’s Davos Remarks
The US Dollar has dropped by -0.3% against the Australian Dollar today, following notable statements about the US currency at the World Economic Forum in Davos.
US Treasury Secretary Steven Mnuchin has deviated from the script for US officials at Davos, declaring that recent US Dollar declines are ‘not a concern of ours at all’.
Mnuchin has clarified his statement, adding;
‘Obviously, a weaker Dollar is good for us as it relates to trade and opportunities’.
A weaker Dollar increases the export of US goods because foreign buyers can benefit from a better exchange rate.
On the other hand, buying foreign components and materials to make goods in the US becomes more expensive because of the relative USD weakness.
Explaining the situation, as well as the dangers, Ian Shepherdson of Pantheon Macroeconomics said;
‘It’s remarkable, really, this kind of bomb-throwing from Mnuchin on the Dollar the same week [the US decides to] slap on tariffs.
The problem with this is it just invites retaliation. This is not a friendly action’.
Worries that the plans could backfire and see nations impose tariffs on a flood of cheap US goods have evidently weighed on the US Dollar today, reducing its overall appeal.
AUD/USD Exchange Rate Volatility possible on Donald Trump’s Davos Address
With no high-impact Australian data out until 30th January, the Australian Dollar could remain subject to US Dollar shifts before the weekend.
As well as US GDP data and durable goods stats being released on Friday, there will also be a highly-anticipated speech from Donald Trump at Davos.
The US President could strike a discordant tone with the rest of the multinational forum, if he focuses on promoting US protectionism instead of globalisation.
Among other factors, Trump was elected in 2016 because he campaigned to ‘make America great again’ by returning jobs and business to the US from overseas.
Unless Trump has a colossal change of heart, he is likely to reiterate the ‘America first’ agenda, which implies the US could shrink while the rest of the world grows.
If the reception to Trump’s remarks is negative, the US Dollar could quickly drop against the Australian Dollar and close weekly trading on a low note.
Trump won’t be the only factor affecting the US Dollar on 26th January, however, as the USD/AUD exchange rate could also be knocked by the afternoon’s domestic data.
This will consist of durable goods orders for December, as well as a revision to Q4 GDP growth.
The outlook is negative in both cases, as durable goods orders are tipped to slow and GDP growth is also set for a downgrade.
Once the dust from Davos has settled, the Australian Dollar could appreciate against the US Dollar on 30th January if the NAB business confidence reading grows as expected.