The Australian dollar surged 0.7% versus the US dollar on Thursday. After advancing further in early trade on Friday, the pair is trading flat at US$0.6910 at the time of writing, as investors pause for breath after another busy week.
The Australian dollar is on track to have rallied a solid 1.1% versus the greenback this week, after 1% rally the previous week. Yet despite the recent pick up in the Aussie dollar, the currency is still down over 5% across the year.
The Australian dollar picked up overnight amid reports that the US had agreed a trade deal in principal with China. President Trump is expected to formally present an interim deal with China as soon as today. This in theory will prevent the trade tariffs on 15th December coming into force. It will also prevent the further escalation of the trade war that has hung over the world’s largest economies for almost two years.
However, the fact that China has remained very quiet over the deal has started to unnerve investors, who have scaled back their bullish bets. As such, the threat of the new tariffs, covering $160 billion worth of Chinese goods annually, has not yet been completely lifted. The Australian dollar is considered a proxy for China. A trade deal is viewed as a positive for the Chinese economy, any signs that it may not happen, and the tariffs will come into force could weigh on the Aussie dollar.
Dollar Eases On Improved Risk Appetite
The US dollar had moved lower following the landslide Conservative victory in the U.K. The Tory party lead by Boris Johnson won an unexpectedly large 80 seat majority in the general election. For Brexit, this means the UK will almost certainty leave the EU on 31st January in an orderly fashion. The clarity over Brexit boosted the pound overnight through US$1.35, its highest level versus the US dollar since June 2019. The large move in sterling following the result weighed on the US dollar.
Brexit clarity and the prospect of a US — China trade deal has boosted risk sentiment. As a result, demand for the safe haven US dollar has dipped. Investors will continue watching trade headlines as the 15th December tariff deadline looms.
|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.