After looking like a small rebound may be on the cards, AUD/USD suffered a further dip on Monday. However, the pairing experienced some gains yesterday thanks to weak US data prints and the possibility that the risk-aversion may be starting to lift.
The Australian Dollar rebounded against the ‘Greenback’ after the initial swan-dive following the UK’s historic decision to exit the European Union. Immediately after the results were announced, the Australian Dollar to US Dollar exchange rate tanked to 0.7328 at its lowest point. This was due to the Brexit result creating a decidedly risk-averse attitude in the markets, naturally turning investors away from the risk-correlated ‘Aussie’.
Currently the AUD/USD pairing trades at 0.7402, just above the low-point hit last week.
Australian Dollar (AUD) sees Marginal Gain from Rising Commodity Prices
The ‘Aussie’ Dollar has been wrestling with the global rise in risk-aversion since last Thursday’s EU referendum, where the UK unleashed a giant wave of uncertainty as it voted to exit the European Union.
As no one really knows what’s in store for the UK now it has decided to leave the EU, uncertainty within the markets reached fever pitch but appeared to be beginning to subside somewhat yesterday. The global shift in sentiment saw investors flee from the riskier Australian Dollar and other commodity currencies as they piled into safe-havens such as the US Dollar and Japanese Yen.
A rise in copper and iron ore prices have afforded the ‘Aussie’ a noticeable boost that can be seen in the Australian Dollar to US Dollar exchange rate gaining traction, although the pairing still remains around the levels seen mid-month.
US Dollar (USD) Depreciates as Traders Engage in Fruitful Profit-Taking
Rising safe-haven demand triggered by the Brexit fallout has seen the US Dollar rally spectacularly since the UK’s EU referendum and only recently are we starting to see some dips.
Yesterday’s dip could be in part due to a massive slog of investors taking advantage of the US Dollar’s new-found strength and selling en masse. The same can be witnessed in the Japanese Yen as it is currently depreciating for similar reasons.
Safe-haven demand remains fairly high however as we are no closer to knowing the UK’s latest circumstances. Officials have been worryingly quiet as they concoct a plan of action for the British economy.
The US Dollar depreciated further, possibly due to the US trade balance printing further into the red than expected and the services PMI print failing to wow investors.
Future AUD Forecasts Still Muddied by Uncertain UK Circumstances, US Data has Potential to Cause Movement
The future looks bleak until policy makers can form something, anything, to guide us through these tumultuous times.
Recent commodity strength bodes well for the Australian Dollar and could well lead to further bolstering if iron and copper continue to gain. Ecostats for Australia are few and far-between so it shall once again come down to market sentiment to effect any movement for the currency.
The US Dollar should remain strong after it has weathered the mass-selling and is likely to stay strong until market conditions present a more stable trading environment. There is a massive list of ecostats coming from the US this week so there will be plenty chances to see any swings. The main reports are the consumer confidence survey that is planned for release later today, Wednesday’s inflation forecast report and a host of sector PMIs set for release over the week.
Talk of a possible Federal Reserve rate cut has surfaced with USD’s recent strength, taking the chances of a rate hike far into the future.
On Thursday, the UK’s conservative party should announce its main contenders for leadership. This may quell uncertainty somewhat within the markets, but only time will tell.
For the now the Australian Dollar US Dollar exchange rate appears to trade narrowly as it awaits the next impactful news.