Australian Dollar to US Dollar Exchange Rate Recovers Some of Last Week’s Losses on Risk-Rally
Despite persistent market panic that the US could spark a ‘trade war’ if it pushes for stricter tariffs on US imports, the Australian Dollar to US Dollar (AUD/USD) exchange rate has spent most of the week so far climbing.
Since opening this week at the level of 0.7763, AUD/USD has hit a weekly high of 0.7836. The pair trended closer to the level of 0.7820 on Wednesday.
However, AUD/USD’s recovery has been limited due to ‘trade war’ concerns and the pair still remains below last week’s opening levels of 0.7844.
The primary reason for the Australian Dollar’s (AUD) strength this week, despite a lack of domestic support, has been due to higher market demand for risk-correlated currencies.
Tuesday saw reports emerge that North Korea had agreed to hold a summit for diplomat talks with South Korea in April. This is to be the first summit of its kind in a decade. North Korea also indicated it would be open to talks from the US.
Hopes for softening diplomatic tensions between the isolated North Korea and other nations left investors less eager to hold on to ‘safe haven’ currencies like the US Dollar (USD), while risky currencies like the Australian Dollar benefitted.
US Dollar (USD) Exchange Rates Pressured by Trade Uncertainty and Risk-Sentiment
Since the US Presidential administration announced intentions to introduce a strict trade tariff on US imports of steel and aluminium last week, the US Dollar has been unappealing to investors.
This caused the US Dollar’s February recovery rally to come to an abrupt halt. US Dollar investors are concerned that the US economy could be negatively affected if the nation introduces strict import tariffs or sparks a global ‘trade war’.
Even when trade war concerns briefly dimmed on Tuesday and the reports of North Korean diplomacy came in, the US Dollar remained weak.
As a ‘safe haven’ currency, the US Dollar is unappealing when investors are more comfortable making risky investments.
Trade concern and risk appetite is making it easy for even a weak Australian Dollar to advance against the broadly weak US Dollar this week.
Australian Dollar to US Dollar (AUD/USD) Forecast: US Trade Stance Developments in Focus
Australian ecostats are likely to take a backseat until the market focus on US trade protectionism cools, as despite underwhelming Australian data in recent sessions the Australian Dollar to US Dollar (AUD/USD) exchange rate continues to climb.
The US Presidential administration’s stance on making stricter trade tariffs has not cooled despite opposition from within the US Republican Party, as well as the resignation of US economic adviser Gary Cohn.
This has made investors anxious that a ‘trade war’ may still become reality and is leaving the US Dollar unappealing.
However, if the chances of a ‘trade war’ impacting trade-heavy nations like Australia worsens, markets are likely to lose interest in risk-correlated currencies too. This may limit the potential for Australian Dollar to US Dollar (AUD/USD) exchange rate gains.
Thursday will see the publication of Australia’s January trade results, but Friday’s US Non-Farm Payroll report from February is most likely to be influential in terms of upcoming data.