The Australian dollar strengthened to a four week high versus the pound and a seven week high versus the US dollar in response to Joe Biden’s victory in the US election. This had a positive impact on the Australian dollar’s value because a Joe Biden administration is believed to offer more support to global trade moving forward, as he looks to repair the damaged US-China relations from Trump’s term as President.
Is improved trade with China on the cards?
President Trump’s ‘tit-for-tat’ trade relationship with China has been a thorn in the side of international trade throughout his term as President of the United States. This is likely to have had an overspill effect on the value of the Australian dollar, as investors shy away from riskier assets such as commodity currencies when faced with uncertainty on the global arena.
It is believed that Biden will have a lighter approach to tensions with the Far East, which could see tariffs reduced and a fresh surge of demand on raw materials as China once again ramps up production. This could see the Australian dollar continue to strengthen as it could offer a much welcome boost to the economy.
Interest Rates to Remain Low
Following last Tuesday’s cut to record low interest rates in Australia, the dollar had looked weaker in the run up to the US election. The Reserve Bank of Australia (RBA) took the bold decision to cut rates from 0.25% to 0.1% and to commit to over $100billion of quantitative easing. Going further the RBA also highlighted that these record lows are likely to be in place for at least three years.
Widely anticipated, the Australian dollar remained resilient on this release from the Reserve Bank however, it highlights just how much pressure is on the economy at present with significant concerns over the employment market and the impact of COVID-19 on the economy. ‘Given the outlook, the board is not expecting to increase the cash rate for at least three years,’ stated Board Governor Jeff Lowe.
Australia on the Brink of Eliminating Coronavirus
Australia continues to see a significant reduction in cases of COVID-19 as tough lockdown measures in the State of Victoria appear to have bought success. In what many are calling a ‘stunning’ response to the pandemic, Australia continues to manage it’s response effectively. As the number of COVID cases in the US surpasses 10million, Australia has recorded 27,668 and less than 1,000 deaths.
Is the Australian Dollar Set to Continue to Strengthen?
Following on from a boost to the dollar on the back of Biden’s victory in the US presidential election, the Australian dollar looks set to continue to strengthen. As the US election is decided (pending any legal challenges from Donald Trump) risk sentiment in global markets will increase and the Aussie dollar remains an attractive choice for investors as the economy looks poised for a recovery. With record low interest rates, a focus on new job creation, a strong COVID recovery and the possibility of increased trade production in China the Australian dollar looks set to run.
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