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Australian Dollar to US Dollar Exchange Rate Forecast for More Volatility as ‘Trade War’ Fears Rise

Australian Dollar Exchange Rates

Australian Dollar to US Dollar Exchange Rate Fluctuates on Rising ‘Trade War’ Fears

Aside from a brief surge in the middle of the week on Federal Reserve cautiousness, the Australian Dollar to US Dollar (AUD/USD) exchange rate has been fluctuating throughout the week due to a lack of strong support for either currency.

Since opening this week at the level of 0.7716, AUD/USD has largely fluctuated between this level and a weekly low of 0.7676. The pair briefly touched on a high of 0.7777 on Thursday but did not sustain this gain.

US political uncertainties and the US Presidential administration’s ramped up protectionist stances on trade have left investors of both the Australian Dollar (AUD) and US Dollar (USD) anxious.

Fears that a ‘trade war’ could be sparked only worsened on Friday, as the US Presidency announced strict tariffs for trade with China. China, Australia’s biggest trade partner, quickly announced retaliation.

According to a statement from China’s commerce ministry;

‘China doesn’t hope to be in a trade war, but is not afraid of engaging in one. China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.’

Australian Dollar (AUD) Exchange Rates Find Little Support in Domestic Data

Amid the rising market fears that a ‘trade war’ could be on the horizon, investors are in risk-aversion mode and as a result have had little reason to buy the risky Australian Dollar.

Australian Dollar demand was also largely unaffected by the publication of Australia’s February job market results on Thursday, which were too mixed to be perceived as particularly hawkish or dovish for the ‘Aussie’.

While Australia’s key unemployment rate unexpectedly worsened from 5.5% to 5.6% in February, this was due to the participation rate unexpectedly rising from 65.6% to 65.7%.

Perhaps the most disappointing aspect of the report was the employment change figure, which fell short of the forecast 20k and printed at 17.5k. The previous figure was revised lower too, from 16k to just 12.5k.

US Dollar (USD) Exchange Rates Under Pressure on US Political Uncertainties

As well as the US Presidential administration’s increasingly protectionist rhetoric and stances on global trade, the US Dollar has been weighed this week by US political uncertainties.

Not long after the firing of US Secretary of State Rex Tillerson, the US Presidency confirmed on Thursday evening that it would sack US National Security Adviser HR McMaster and replace him with John Bolton.

The staff shakeups right at the top of the White House have made investors anxious.

On top of this, the Federal Reserve’s March policy decision didn’t give US Dollar investors much to be excited about either.

The Fed indicated that it still only forecast three US interest rate hikes throughout 2018, rather than hinting at four 2018 rate hikes as some hawkish investors hoped for.

Australian Dollar to US Dollar (AUD/USD) Forecast: Trade Concerns Remain in Focus

The Australian Dollar to US Dollar (AUD/USD) exchange rate may not see a significant shift in direction in the coming days as concerns about US trade stances or a possible ‘trade war’ continue to keep pressure on both currencies.

Next week’s Australian economic calendar will be relatively quiet too, with only new home sales and private sector credit data expected throughout the week.

As a result, the Australian Dollar is likely to be driven largely by risk-sentiment and trade news. The US Dollar, on the other hand, may see influence from some key US ecostats throughout the week.

Wednesday will see the publication of the US’ final Q4 Gross Domestic Product (GDP) results. US growth is forecast to have slowed from 3.2% to 2.6% quarter-on-quarter.

Thursday will follow with US Public Consumption Expenditure (PCE) data. As PCE is the Federal Reserve’s preferred measure of inflation, a strong figure could boost Fed interest rate hike bets and leave the US Dollar stronger next week.