The Australian Dollar to US Dollar (AUD/USD) exchange rate declined by around -0.95% on Friday afternoon.
In the wake of the decision by the Swiss National Bank (SNB) to remove its Euro cap, the Bank of Canada (BOC) cash rate cut and the European Central Bank (ECB) quantitative easing; risk sentiment dampened exponentially. As a risk-correlated currency, the Australian Dollar (AUD) suffered from lack of demand which was compound by speculation that the Reserve Bank of Australia (RBA) will join the spate of policy easing.
The US Dollar, conversely, gained from the recent economic shocks thanks to its safe-haven status. Mixed data results have had minimal impact amidst cautious trading.
The Australian Dollar to US Dollar (AUD/USD) exchange rate is currently trending in the region of 0.7944.
As explained above, the combination of SNB Euro cap removal, BOC rate cut, ECB QE and low oil prices has caused trader risk sentiment to fizzle out. The Australian Dollar dived as a result of dampened demand, and speculation that the RBA will emulate other central bank policy easing heightened the decline.
‘The reason [the Bank of Canada] cut rates is largely weaker oil prices. Australia is also a commodity exporter. The market could be excused for anticipating the RBA (Reserve Bank of Australia) would adopt a similar viewpoint,’ said Greg Gibbs, senior foreign-exchange strategist at RBS.
‘Every central bank is trying to get rates down to zero, if not lower than zero,’ said Kumar Palghat, managing director at bond manager Kapstream Capital. ‘The only question is, you take rates down to zero, you depreciate your currency, you buy as much bonds as you want, if it doesn’t work, then what else are they going to do?’
The Australian Dollar to Euro (AUD/EUR) exchange rate dropped to a low today of 0.7019.
As discussed previously, demand for safe-haven assets caused the US Dollar to strengthen against nearly all of its major peers. Many analysts speculate further US Dollar appreciation as policy divergence highlights economic disparity.
‘The short-term outlook is getting brighter and the economy continues to build momentum,’ Ataman Ozyildirim, a Conference Board economist said in the report. ‘Current economic conditions measured by the coincident indicators show employment and income gains are helping to keep the US economy on a solid expansionary path despite some weakness in industrial production.
Given the lack of data to curb the trend, and with risk-aversion trading dominating the market, the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to continue trending lower for the remainder of Friday.
The Australian Dollar to US Dollar (AUD/USD) exchange rate climbed to a high today of 0.8052.
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