Since Donald Trump won the race to the White House and became President – elect, the Pound has made considerable gains against the Australian dollar. Exchange rates have increased 10 cents which makes a 200,000 Australian Dollar purchase £7,500 cheaper. Commodity currencies including the Australian Dollar have become a risk since Trumps appointment and speculators have moved their assets out of the Australian Dollar and entered ‘safe haven’ currencies such as the US dollar. AUD/USD now sits at a 5 month low!
In recent times commodity prices (that have a direct impact on Australian dollar exchange rates) have been on the rise however many economists expect a reverse for Australia in the near future as China’s last round of monetary easing is coming to an end and the companies that import coal and iron ore are set to run down their inventories. This theory is supported by Australia’s biggest producer of Iron Ore, Rio Tinto, as they stated earlier in the week they will be cutting 500 jobs in Western Australia as they believe the peak of $80 a tonne will not be sustained.
Couple this news with a potential rate hike in the US in December, which in turn could lead to another mass sell of Australian Dollars to buy US Dollars, I expect further Australian Dollar weakness up until the New Year. For Australian Dollar sellers that need to trade before the turn of the year, I would suggest contacting your account manager to devise a strategy as I believe rates will continue to get worse. It’s key to note that you are not selling at the complete lows, however if you compare exchange rates to this time last year you are now receiving an additional 40 cents!
With the FED expected to hike rates in December, commodity currencies such as the Australian Dollar could weaken presenting opportunities for clients looking to buy AUD. If you would like to understand more please call our trading floor on 01494 725 353.
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