Australian Dollar may weaken over lower growth outlook

The Australian Dollar could see a particularly volatile year for 2017 not just because of a weaker outlook in the Australian economy but equally importantly as a result of major political changes in the US. Australian mining has performed badly for the last two years following a boom in the sector whilst unemployment has been edging higher to 5.7%. The Australian government has also downgraded its growth forecasts whilst signalling budget deficits in the coming years.

Australia is one of only a few countries left that maintain the triple A credit rating from each of the three major ratings agencies – Standard and Poor, Moody’s and Fitch.

Standard & Poor for one has made noises that it may look to downgrade Australia’s AAA sovereign rating and there is speculation that this may happen mid-2017. This would be a sign that all is not perfectly well down under and could see the dollar under renewed pressure moving into the New Year.

Australian Dollar impact when Trump is in Power

The other driving force comes direct from the US in terms of American trade and foreign policy and of course the direction of US interest rate hikes. Any policy changes on trading terms with China and the rest of the world could see volatility for the Aussie as China is one of Australia’s largest export markets. After Donald Trump’s inauguration in January there should be soon after some clear policy decisions being made which is likely to impact on all of the major currencies but certainly the Australian Dollar.

AUD Exchange Rates at Mercy of US Federal Reserve

In terms on US monetary policy as is stands the Fed have been bold and have hinted at three rate hikes for next year. Should this number of hikes materialise then the Australian dollar could weaken as there are likely to be substantial flows of funds heading back to the US and away from the likes of the Australian dollar.

Data is light this week with just trade balance data on Friday and with no data releases next week either. The next focus will be on Australian inflation and unemployment numbers released in just over two weeks’ time.

If you have an Australian Dollar selling requirement, why not get in touch with your assigned currency dealer? Further AUD weakness may present itself if the economy continues to show signs of weakness. Call us on 01494 725 353 or email me at jll@currencies.co.uk to discuss further.

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