The Australian dollar lost ground versus the U dollar in the previous week. The pair declined 0.5%, snapping three consecutive weeks of gains. Australian dollar closed on Friday at US$0.6823. The Aussie dollar was moving cautiously higher versus the US dollar at the start of the new week, trading in a quiet manner, with many investors opting to stay on the side-lines ahead of a busy week for both the Aussie dollar and the US dollar.
The Australian dollar was trending slowly higher on Monday amid encouraging trade headlines. US President Trump said that he expected to sign a trade deal with China at the APEC meeting later in November. These comments had a positive impact on the market, boosting the Aussie dollar.
China is Australia’s principal export partner. This means that the health of the Chinese economy is closely tied to that of the Australian economy. A trade deal would be good news for the Chinese economy and therefore the Australian economy and the Aussie dollar.
Looking ahead Australian dollar investors are turning their attention to a speech by the Reserve Bank of Australia’s Governor Dr Philip Lowe on Tuesday and more importantly the third quarter inflation figures from Australia on Wednesday.
US Dollar Pares Gains As Fed Cut Eyed
After climbing across the previous week, the dollar is paring gains on Monday. As optimism builds over a trade deal, investors were moving out of the safe haven dollar. Investors are also eyeing up a critical week for the greenback with several high impacting events and data releases.
Market participants are pricing in a 93.5% probability of the Federal Reserve cutting interest rates this month. The Fed is due to give its monetary policy announcement on Wednesday. Investors are certain the cut is coming; they will be watching closely to see what the Fed intends to do going forward. Will the Fed continue cutting interest rates or will this be the final cut in this cycle?
Any suggestion that there are more interest rate cuts to come could send the dollar sharply lower.
| 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. |
| 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. |
