AUD/USD Exchange Rate Tumbles as Brexit Instability sees Safe-haven Demand Surge


United States Dollar (USD)

Prevailing Risk-Off Market Conditions Turn Investors from AUD/USD Exchange rate Brexit-based uncertainty keeps traders decidedly risk-averse.

Surge in Safe-Haven Demand affords US Dollar Impressive Broad Gains – USD support grows but is somewhat stifled by the Fed’s rate hike reluctance.

Weak Commodity Prices give Aussie No Quarter – Continually falling iron ore fails to cushion AUD/USD exchange rate slide.

Uncertain Market Conditions Forecast to Continue – Safe-haven demand is likely to stay until emergency policies are announced.

Risk-off market sentiments have launched the AUD/USD exchange rate into freefall following the UK’s decision to leave the European Union.

As the final results came in, the pairing saw a massive drop from 0.7639 just after the polls closed to a low of 0.7310 in the early hours of Friday morning.

By mid-morning the AUD/USD exchange rate had settled somewhat and has been tracking around the 0.74 mark since.

Safe-haven demand stirred up by the incredibly volatile circumstances has seen the US Dollar make fantastic gains in all its popular pairings, bar the Japanese Yen. The risk-averse nature of the post-vote market has seen investors shun the recently hazardous Euro.

The Australian Dollar to US Dollar exchange rate experienced a 2% decline during Friday’s session and was trading at 0.7413 as of time of writing.

Australian Dollar (AUD) Weakened Across the Board due to Risk-off Conditions

At first ‘Aussie’ traders were in good stead as the polls closed on Thursday night. A preliminary survey was indicating a ‘Remain’ vote and investors were happy to trade in the perceivably risk-on environment.

All changed however, when the first concrete results were announced by Sunderland. Showing a large Brexit majority, the market responded appropriately and this is where things started to go into meltdown somewhat.

The fairly recent further depreciation of Australia’s commodity exports has not helped the antipodean currency as it struggles to keep its head above water in a decidedly risk-averse market. The ‘Aussie’ has seen a decrease in its most popular pairings, not including AUD/GPD or AUD/EUR of course, as traders flock to safe-havens to ride out the market jitters.

US Dollar (USD) Revels in Safe-Haven Demand

Thanks to the incredible wave of uncertainty unleashed by the Brexit result, traders have sought refuge with the less volatile US Dollar to wait out the upcoming market upheaval.

The surge of safe-haven demand in the wake of the rising doubt within the forex markets has lifted the US Dollar in its most popular pairings except versus the Japanese Yen. A fellow safe-haven currency, the falling USD/JPY rate points towards investors eyeing the Yen as the safest bet right now even with the Bank of Japan’s negative interest rates, especially given that a Fed rate hike seems even more unlikely.

USD initially saw a 7% rally against the Pound but that has subsided somewhat. Other notable rallies include USD/NOK at 4.1%, a 4.6% increase against the Polish zloty and a 2.4% rise against the Euro.

With the US Dollar performing so strongly, this will likely cause the Federal Reserve to alter their rate outlooks as any imminent hike would lead to a dangerous over-valuing of the Greenback.

Post-Referendum Sentiment to Dictate AUD/USD Exchange Rate Forecasts

As long as risk-aversion permeates the market the ‘Aussie’ will fail to attract many new investors. Weakened commodity prices have not served to assist the Australian Dollar in any fashion and with iron ore pegged to fall further it could spell extra devaluation for the antipodean currency.

Ecostats are painfully thin on the ground for Australia next week so it will be left to prevailing market sentiment to enact any movement on AUD.

Luckily the US is chock-full of juicy market reports next week, offering plenty opportunities for movement either way. Monday sees preliminary services and composite PMIs being released as well as the advanced goods trade balance. Naturally if the PMIs print above expectations it will lend support to the Dollar, the opposite can be said in a reverse situation.

Annualised GDP is set for release on Tuesday as well as the highly influential consumer confidence survey, however to speculate on any movements, even just next week, may be reckless as we still aren’t sure what measures banks are going to take in the wake of the ‘Brexit’ result.

We shall have to look to the next few days as policy makers adjust and tinker to see what will happen to the AUD/USD exchange rate.

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