US Government Shutdown Helps Australian Dollar to US Dollar Exchange Rate Advance
The Australian Dollar to US Dollar (AUD/USD) exchange rate advanced during Monday’s European session, as news of a US government shutdown left the US Dollar (USD) unappealing, even against the risky Australian Dollar (AUD).
Last week saw AUD/USD advance from 0.7923 to 0.8002. The pair also briefly touched a four-month-high of 0.8035 on Friday. This marked the first time AUD/USD had trended above the key 0.80 level since September 2017.
The US Dollar’s recent weak-streak continued after it was confirmed that US Congress had failed to reach an agreement on government funding by the end of last week.
As a result, the US government shut down on Saturday, leaving government services closed on Monday and the US Dollar slightly weaker.
However, the news ultimately wasn’t too shocking for investors and foreign exchange market reaction has been limited. According to Richard Grace from Commonwealth Bank;
‘The USD has opened up a little weaker, but there has been only a modest reaction in the currency markets in early Monday morning Asian trade to the partial US government shutdown,’
Australian Dollar (AUD) Exchange Rates Limited by Risk-Sentiment
While the Australian Dollar was able to advance against the US Dollar on Monday, its gains were limited as the US government shutdown also had a negative effect on market risk-sentiment.
The US Dollar was weak, but investors were hesitant to take risks until the US political situation cooled.
This is because the longer the US government shutdown lasts, the stronger its chances of having some kind of negative effect on global growth.
Last week, the Australian Dollar was supported by Australia’s December employment report, which generally beat expectations and rounded off a strong year for Australia’s job market.
The Australian Dollar has also been supported by strong commodity news. Prices of iron ore, Australia’s most lucrative commodity, saw strong performance on Friday.
US Dollar (USD) Exchange Rates Find No Support in US Ecostats
Recent US data has not been particularly impressive and as a result has not given investors much reason to buy the unappealing US Dollar.
Monday saw the publication of Chicago Fed’s national activity index, which only rose to 0.27 rather than the expected 0.44. The previous figure was revised lower, from 0.15 to just 0.11.
It followed last week’s data which included some disappointing consumer sentiment stats from Michigan University’s January survey. US housing data from December was also disappointing according to last Thursday’s data.
Australian Dollar to US Dollar (AUD/USD) Forecast: US Political News to Drive Pair
Amid a lack of notable Australian or US ecostats due for publication until later in the week, the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to react mostly to risk-sentiment and political developments.
The US government shutdown is likely to remain in focus for AUD/USD traders until it comes to an end, which could happen as soon as the next few days but may instead last longer.
Markets generally expect the shutdown will be short-lived and have a modest-at-worst impact on US economic growth. If the government shutdown is over in the coming days the US Dollar could even strengthen as it regains some of its recent losses.
On the other hand, the longer the shutdown lasts the worse it could affect growth, and this could help the Australian Dollar to register more gains against the US Dollar.
Australia’s December leading index report from Westpac will be published on Thursday, followed by US home sales, durable goods orders and Gross Domestic Product (GDP) data towards the end of the week.