The Australian dollar surged to a fresh 1 month high versus the US dollar on Monday. The pair rallied to a high of US$0.6881 extending gains from the previous week. The Australian dollar US dollar jumped 1% across the previous week, its third straight week of gains.

The Australian dollar is looking well supported. Last week the pair was lifted by hawkish comments from the Reserve Bank of Australian Governor Philip Lowe, in addition to a stronger than forecast labour report.

Last week the Australian dollar reacted positively to data that showed that the Australian unemployment rate unexpectedly fell to 5.2%, down from 5.3%. The figures marked the first drop in unemployment in 7 months. The figures came the same week as Dr Lowe reduced expectations of any further interest rate cuts. Instead he indicated that he saw a return to trend growth over the next year. The less dovish time has boosted investor demand for the Aussie dollar.

 

Why do interest rate cuts drag on a currency’s value?
Interest rates are key to understanding exchange rate movements. Those who have large sums of money to invest want the highest return on their investments. Lower interest rate environments tend to offer lower yields. So, if the interest rate or at least the interest rate expectation of a country is relatively lower compared to another, then foreign investors look to pull their capital out and invest elsewhere. Large corporations and investors sell out of local currency to invest elsewhere. More local currency is available  as the demand of that currency declines, dragging the value lower.

 

US – Sino trade dispute developments are also boosting the risker Australian dollar.

There is no high impacting Australian data due for release until later in the week. US – China trade developments could drive trading until then.

Dollar Drops On Trade Chatter

The dollar trended lower in early trade on Monday as concerns linger over the health of the US economy and amid chatter that the US and China could soon reach a trade deal.

Over the weekend the Chinese vice premier Liu He announced that the US and China had made significant progress in recent trade talks. He said that a trade deal would be beneficial not only for Chia and the US but also for the global economy.

Adding to the optimism, President Trump also said that he believed that the two sides, US and China will have signed a trade deal by the Asia – Pacific Economic Cooperation meeting in mid-November. He added that that this could be sufficient to prevent any further trade tariffs.

The encouraging trad news has boosted risk appetite in the market. When risk appetite increases, investors often sell out of safe havens, such as the US dollar.

 

What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.

For example, it could be written:

1 USD = 0.6784 AUD

Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.

Or, if you were looking at it the other way around:

1 AUD = 1.4739 USD

In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.

 

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