Initially hamstrung due to the upset caused by the Australian federal election, in which 13 undecided made a hung parliament a possibility, the Australian Dollar to US Dollar exchange rate saw a fair rally during this morning’s session thanks to surging commodity prices.
Thanks to safe-haven demand lessening after the initial post-Brexit fever pitch, rising commodity prices and the hope that the Reserve Bank of Australia (RBA) will not be cutting rates immediately meant the Australian Dollar US Dollar exchange rate managed to recoup its losses, surpassing any highs seen last week.
Currently the Australian Dollar US Dollar exchange rate trades at 0.7528, rallying almost 0.40% over the course of the morning.
The ‘Aussie’ is rallying across the board today thanks to a healthy surge in commodity prices, including an over 4% rise in silver, as well as ratings agencies’ decisions not to downgrade the Australian economy’s AAA credit rating following the inconclusive federal election.
The recent massive rallying of commodity prices has afford the Australian Dollar much upward pressure, with gold, copper silver and platinum all seeing significant boosts. In fact, almost all commodities, barring agricultural, have seen a marked increase, the strongly commodity-correlated ‘Aussie’ naturally has enjoyed a decent increase in support thanks to the rise.
On Saturday the entire Australian public (as voting is compulsory in Australia) came together to vote in a new parliament in a fresh federal election. All 225 seats were to be decided, but as it stands, 13 seats have been left undecided with neither party gaining the required majority to govern. The political turmoil arising from the circumstances caused some analysts to hint at the possibility of ratings agencies downgrading the Australian economy, but those fears have been tempered by announcements that no such downgrades are planned.
Markets are closed in the US as our American cousins celebrate Independence Day. This also means there is a lack of any positive domestic data to stem the US Dollar’s losses against the ‘Aussie’.
The US Dollar has been enjoying a period of overwhelming safe-haven demand following the UK’s referendum regarding its membership of the European Union. As a Brexit became apparent, wild market conditions saw investors flock towards the secure US Dollar, seeing its value inflate drastically. However, the Fed eluding to the increasing unlikelihood of a near-term rate hike has stamped out any further support as the likelihood of a rate cut seems ever present.
Safe-haven demand has died down somewhat with the looming possibility of a rate cut. Likely due to the Independence Day holiday, the US Dollar has not seem much movement in the currency markets, with rising commodities seeing the ‘Buck’ depreciate versus the Canadian and ‘Aussie’ Dollars.
Australian data has started the week on a lame footing with domestic building approvals dropping -9.1%. Tomorrow holds the Australian services PMI and retail sales figures, both of which could support the Australian Dollar if they print notably above expectations.
Most importantly, the Reserve Bank of Australia (RBA) is set to announce whether it shall be changing its benchmark rate tomorrow. Any hint of a cut would send investors running scared from the antipodean currency.
Early-week market reports coming from the US include US factory orders along with durable goods orders on Tuesday. Both function as a kind of optimism marker for the economy, with durable goods serving as a more long-term insight as they require significant investment.
A whole host of US data is set for release over the week. Reports to look out for in particular include the ISM non-manufacturing composite, the minutes from last week’s FOMC meeting, US employment rate and change in non-farm payrolls. All reports tend to hold considerable weight over the US Dollar and are likely to afford the currency positive movement if they print well.
We shall have to watch the outcome of the Australian election closely to gleam any short-term insights into the Australian Dollar US Dollar exchange rate as political uncertainty remains high with no majority government.
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