The period from July to November 2024 has been marked by significant fluctuations in the Australian Dollar against the US Dollar. The updated and latest news and review on the chart are as stated below.
Key Developments in the Aussie Dollar since July
July 2024
- Monthly Decline: The AUD experienced its first monthly decline against the USD since April. This decline occurred despite some weakness in the US dollar itself. The AUD/USD exchange rate dipped below US$0.65 during intraday trading on July 31, 2024, after the Australian Consumer Price Index (CPI) came in close to RBA forecasts, indicating no immediate cash rate increase from the Reserve Bank of Australia (RBA).
- Economic Data: The Australian economy showed resilience earlier in the month, but deteriorating financial market sentiment led to a sell-off in the AUD. The exchange rate averaged US$0.6671 for July, closing at US$0.6542.
- Commodity Prices: The CRB commodity price index fell to its lowest levels since March, and iron ore futures prices also declined for six out of the past seven months, reflecting broader concerns about demand.
August 2024
- Market Recovery: The AUD saw some recovery as fears of a US recession led to increased risk appetite among investors. The RBA maintained its cash rate at 4.35%, signaling a cautious approach towards inflation and interest rates .
- Investor Sentiment: Optimism grew around the potential for the AUD to strengthen against the USD due to expectations of US rate cuts and stable Australian economic fundamentals.
September 2024
- Performance Recovery: After a weak start, the AUD became one of the best-performing currencies in the G10 during September, driven by improved risk appetite and soft US employment data that raised concerns about a slowing US economy. The AUD/USD exchange rate fluctuated significantly during this month.
October 2024
- Continued Weakness: The AUD was one of the weakest currencies in October, ahead of only the New Zealand dollar and Japanese yen. This decline occurred despite expectations for interest rates to remain stable in Australia while other central banks signaled potential cuts.
- Economic Indicators: Economic data showed that while some sectors performed well, overall sentiment remained cautious due to external pressures and domestic inflation concerns.
November 2024
- Global Factors Impacting AUD: The re-election of Donald Trump in the US boosted the US dollar due to increased fiscal optimism, which put downward pressure on GBP/USD and indirectly affected the AUD as well. Despite these challenges, some analysts noted that strong Australian economic fundamentals could provide support for the currency.
- Market Positioning: Investor sentiment remained mixed, with projections indicating short-term weakness for the AUD while highlighting potential long-term resilience against other currencies like the euro and emerging market currencies.
- Technical Analysis: As of mid-November 2024, the AUD hovered near three-month lows against the USD, facing downward pressure from weak economic data . RBA Governor Michele Bullock indicated that current interest rates would remain unchanged until confidence in inflation improved.
What to look out for?
One of President Trump’s key initiatives, the expansion of the “Drill, Baby, Drill” project, could have significant implications for the global energy sector, particularly in terms of increasing oil production. By ramping up domestic production, the U.S. may lower energy costs, benefiting industries that rely on cheap fuel and potentially boosting the overall economy. However, while this could have positive effects for the U.S., it may also create ripple effects for other countries, including Australia.
Australia, as a key player in the global energy market and a provider of alternative energy sources, could see its economy affected by changes in the energy landscape. If global energy prices decline due to increased U.S. production, Australia’s energy sector might face downward pressure. This could lead to slower growth in the Australian economy, potentially lowering its GDP as demand for higher-cost energy from Australia decreases, and alternative sources become more attractive.
Geopolitical Risks and the Aussie Dollar
As global tensions rise, particularly in areas of conflict and geopolitical instability, risk-sensitive currencies like the Australian Dollar (AUD) may experience volatility. The Aussie dollar is often seen as a barometer for global risk appetite, and in times of increased uncertainty—whether due to military conflict, political instability, or economic turmoil—investors typically seek safer assets. The higher the perceived global risk, the lower the chances of growth for the AUD. In such an environment, the Aussie dollar could see downward pressure as investors move capital into perceived safe havens such as the U.S. Dollar or Swiss Franc.
The Impact of China’s Economic Growth on Australia and the Aussie Dollar
The economic relationship between Australia and China is a key factor in determining the performance of the Australian Dollar. As one of Australia’s largest trading partners, China’s economic health has a direct impact on Australian exports, particularly in commodities like iron ore, coal, and natural gas. If China’s economy weakens, Australia may experience reduced demand for its exports, leading to slower economic growth and a potential decline in the value of the AUD.
Trump’s planned increase in tariffs on Chinese goods is another significant risk factor for the Australian economy. If China’s economy struggles to absorb these new tariffs, or if the expected fiscal stimulus measures fail to materialize as anticipated, this could exacerbate Australia’s economic challenges. Lower Chinese demand for Australian exports would likely weaken the Australian dollar, as global investors adjust their expectations for Australia’s economic outlook.
The Broader Impact of U.S.-China Trade Tensions
If Trump’s tariff policies significantly disrupt the Chinese economy, the effects could reverberate across the globe. As one of the world’s largest economies, China’s slowdown would have profound implications not just for Australia, but for global markets as well. The ripple effects could be particularly notable in the global oil market. A slowdown in China could lead to reduced demand for oil, putting downward pressure on oil prices. This, in turn, would affect oil-exporting countries, including Australia, where the energy sector plays a crucial role in the economy.
By: Tim Figueroa, Market Analyst
