The Australian Dollar (A$) ⇨ US Dollar ($) (AUDUSD) has continued its decent today, falling 0.7% to US 73.70 cents according to Yahoo! Finance.
With today’s falls the Aussie dollar has fallen from around US 76.7 cents at the beginning of the month, or more than 3%. That’s a 13-month low for the dollar.
What’s Going On?
There are a few forces putting pressure on the Aussie dollar. According to FXStreet, the threat of a US-China trade war is back on the cards after US President Donald Trump ordered his staff to get a list of Chinese goods which could be taxed via tariffs.
Apparently, Trump’s move comes in response to China’s tariffs on US agriculture products.
The US dollar is often considered the world’s ‘reserve currency’ and, therefore, is often seen as a ‘safe haven’ when the international economic outlook becomes uncertain. By contrast, the Australian dollar is typically seen to be riskier than others given that our country’s focus on mining, which can be cyclical.
Another trend is the interest rate differential between Australia and the US. Last week the USA’s central bank, the Federal Reserve, announced an increase to official interest rates and forecasted more to come this year.
This is in contrast to Australia’s RBA which has not budged on interest rates for more than 18 months.
Higher interest rates typically attract large institutional investors who go in search of a better return. Therefore, the country with the stronger economy will often see their currency become more valuable.
As we reported in March, Westpac Banking Corp (ASX: WBC) chief economist Bill Evans revised downwards his forecast for the Australian dollar to 72 US cents before the end of 2018.
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