The Australian dollar US dollar exchange rate is trending lower on Wednesday. After a brief pop higher earlier in the week, the pair has now moved into negative territory across the week to date. The pair dropped to a nadir of US$0.6761 in early trade on Wednesday.
The Australian dollar has been unable to hold onto gains from the previous session and has come under pressure once again today. Whilst Reserve Bank of Australia (RBA) Governor Dr Philip Lowe said on Tuesday that he believed that the Australian economy was moving towards a turning point, investors are showing doubt.
Data last week showed that Australian unemployment ticked up from 5.2% to 5.3%. Dr Lowe has previously communicated that this is a metric that he watches closely. Market participants are growing increasingly convinced that the RBA will cut interest rates at their next meeting, on Tuesday.
|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.|
USD Jumps Amid Trump Impeachment Scandal & Trade Developments
The dollar is rebounding strongly in trade on Wednesday, as investors digest political and trade related headlines.
Whilst the dollar initially declined following the announcement of the impeachment investigation into President Trump, the greenback has since bounded higher on Wednesday. US House Speaker Nancy Pelosi launched an impeachment enquiry as the scandal surrounding President Trump’s phone call with the President of Ukraine grows. Investors will continue to watch developments here closely. The dollar could experience heightened volatility as any evidence comes to light.
Trade tensions are also a central theme today. President Trump’s criticism of China’s trade practices in a United Nations speech on Tuesday unnerved investors, boosting fears that relations between the two powers were deteriorating. However, today China have announced that they will buy more pork from the US as a gesture of goodwill ahead of trade talks next week. Given that the US economy would benefit from the move the dollar advanced.
Looking ahead US dollar investors will focus on tomorrow’s US GDP figures. Analysts expect the final revision to remain at 2% quarter on quarter growth. This down slightly from the initial reading of 2.1%. A weak figure could drag the dollar 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.