On Thursday we mused that traders weren’t sure what to do with the Australian dollar in the wake of Donald Trump being elected as the next President of the United States.
Now, 24 hours on, it’s pretty clear that markets are still none the wiser.
Is “The Donald” good for the Aussie as he wants to ramp up infrastructure spending, helping to tighten commodity markets? Or will his proposed controversial trade policies, along with the increased likelihood of higher interest rates in the US, prove to be a negative?
That’s what traders are grappling with right now. And, as yet, there’s no definitive answer.
That fact was reinforced by the wild price action seen over the past 24 hours, mirroring the same crazy movements seen the day before.
It just didn’t know where to go. Up, down, sideways. If it was possible it’d probably have tried to go backwards.
From top to bottom, the AUD/USD moved in a 178 pip range, surging in early European trade to as high as .7742 before slumping as low as .7564 as US markets got underway.
And that followed a 195 pip move on Wednesday.
It’s been crazy.
Elias Haddad, senior currency strategist at the Commonwealth Bank, has been brave enough to attempt to explain the crazy moves.
“AUD/USD drifted lower overnight and briefly broke below its post-Trump victory low near 0.7580,” he said.
“A firmer USD combined with the solid lift in US and European bond yields undermined AUD. Higher global bond yields reduces the attractiveness of typical higher-yielding currencies like AUD.”
The yield on the US 10-year treasury note hit a high of 2.148% in overnight trade, a level not seen since January.
Haddad suggests a “stronger USD will continue to weigh on AUD/USD”, although he believes that it’s unlikely to make a sustained move below .7300 over the next 18 months.
“AUD is likely to receive support from higher commodity prices, an improvement in Australia’s terms of trade and a narrower trade and current account deficits,” he says.
After a hectic week for traders, the economic events calendar tapers off significantly on Friday with few market-moving events on the horizon.
Domestically, Guy Debelle, RBA deputy governor, will participate in a panel discussion at a FINSIA event in Melbourne. It’s a market regulator, so it’s unlikely to touch on monetary policy.
Elsewhere, there’s next to nothing.
In the US, the University of Michigan Consumer Sentiment Index for November will be released this evening but it was conducted before the US election, so it’s close to meaningless.
That means that outside of unexpected news, movements in the Aussie and markets in general will continue to revolve around just what a Donald Trump presidency will mean for both the US and global economy?
Here’s the Aussie dollar scoreboard as at 8am in Sydney:
- AUD/USD 0.7603 , -0.003 , -0.39%
- AUD/JPY 81.25 , 0.61 , 0.76%
- AUD/CNH 5.1930 , -0.0227 , -0.44%
- AUD/EUR 0.6982 , -0.0014 , -0.20%
- AUD/GBP 0.6060 , -0.0092 , -1.50%
- AUD/NZD 1.0555 , 0.0077 , 0.73%