Australian Dollar at Risk for US Data and Trump

Australian Dollar at Risk for US Data and Trump
by, David Frank,

Economist Points to consider with this Australian Dollar Forex article:

• The Australian Dollar starts to gain steam as the financial markets digest the Trump Trade volatility.
• A strong news flow out of the United States this week should boost a Federal Reserve outlook and rekindle the Australian Dollar selloff.
• President-elect Donald Trump and his cabinet appointments remain a source of headline risk and volatility.

This week, we are getting ready to enter the last month of the year, December. This month ends to be a quiet trading period out of the twelve months. However, the markets are worked up thanks to United States President-elect Donald Trump and his talk of protectionism. There are also key events later this week with the non-farm payroll jobs report, an OPEC cartel meeting and the Bank of England (BOE) is releasing its stability report. Talk about a minefield as we enter December.

The Australian Dollar saw a shallow recovery last week. .This was expected as China released some supportive economic data. Remember the Aussie Dollar is the favorite Forex proxy of China’s economic health. This move higher, however, appeared to be a corrective mood swing after two weeks of aggressive selling. The selling came in the wake of the US Presidential election. The global financial markets, including the currency universe, have been speculating as to the policies of US President-elect Donald Trump. The markets are concerned that Trump will be inflationary, thanks to increased fiscal spending and tax cuts, which will see a steeper rate hike path by the Federal Reserve. Currently, the Reserve Bank of Australia (RBA) is taking a wait-and-see approach to monetary policy. This has caused a shift in yield spreads which is not supportive of a strong Australian Dollar.

A Slow News Week Keeps Focus on Macro-level Trends

This week will be one without any large Australian event risk. This means that Forex investors will be focusing on macro-level risks. This US economic news and data docket is very dense this week. On tap is the Federal Reserve’s favorite inflation gauge, the PCE inflator, revised third quarter (Q3) gross domestic product data, and the November non-farm payroll report (NFP) to close the week. The economic news flow out of the world’s largest economy has been improving since last October. If this continues, then market watchers and economists will start to consider that the US economy is running hotter than they previously thought.

There is also US political developments to consider. These will remain an important and key risk factor of volatility, not only this week but until the presidential inauguration in January. Trump’s cabinet is starting to take shape however, he has not filled in his key economic posts as of yet. Investors are very keen to see who will take up the reins of economic policy in his
administration. The markets are looking for key appointments to head the Department of Treasury and Commerce as well as the incoming Trade Representative. These appointments, if seen as positive, can rekindle the Trump Trade in the global financial markets. This will put some more upwards pressure on US Treasury yields, supporting the US Dollar and thus putting selling pressure on the Australian Dollar.

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