The pullback in the Australian dollar continued across the European session on Friday. The Australian dollar declined 0.4% versus the US dollar on Thursday. The pair was extending those losses on Friday with the Aussie dollar trade 0.5% lower at the time of writing at US$0.9647.
A fresh wave of global risk aversion amid escalating geopolitical tensions in the Middle East has dragged on demand for perceived riskier currencies such as the Australian dollar. Tensions in the Middle East intensified following reports that a US airstrike on an airport in Baghdad killed Iranian Major General Quassem Soleimani and Iraq militia commander Abu Mahdi al-Muhandis.
The tone in global financial markets turned cautious, with the risk off mood deepening after Iran’s supreme leader Ayatollah Ali Khamenei promised a severe retaliation.
Adding to Australian dollar woes are growing concerns that weeks of wildfire disruption in Australia could weigh on the Australian economy. Australia is facing a huge bill from unprecedented fires that have already burned an area larger than the size of Belgium. Economists have estimated that the cost of disruptions due to smoke in Sydney are in the region AUD$12 million to AUD$50 million per day.
There is no high impacting Australian economic data due to be released today. However, Monday sees the release of the AIG performance manufacturing index, service PMI and composite PMI.
Safe Haven Dollar Rallies
Whilst escalating US – Iran tensions weighed on the value of the riskier Australian dollar, the safe haven dollar rallied. As the reserve currency of the world, demand for the dollar picks up in times of geopolitical risk.
Looking ahead US dollar investors will switch their attention towards ISM manufacturing data. Analysts are expecting manufacturing activity to have ticked higher in December to 49, up from 48.1 in the previous month.
Later in the session investors will turn their attention towards the minutes from the Federal Reserve monetary policy meeting in December. Investors will be watching for clues as to what may change the Fed’s outlook on rates in the near future after the central bank held rates steady in December.
| 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. |
