Deutsche Bank’s Chief economist Adam Boyton claims the pair could hit 0.80, even higher as the Australian economy benefits from higher commodity prices and stronger exports. Australian Dollar to US Dollar exchange rates last hit 0.80 back in May 2015, following concerns that the US may be on the edge of a recession when growth forecasts shrank 0.7% that year.
This time round, both the US and Australian economy are outperforming, and the stronger US Dollar is pushing commodities higher which has beneficial implications for the Australian export markets.
There are however, reasons to be cautious towards the Australian Dollar. Carry trading has become popular in recent months, noticeable due to higher interest rates from the RBA coupled with economic and political uncertainty elsewhere. In the wake of the FED’s promise to hike interest rates further this year, investors will have the choice to continue investing in the Aussie Dollar or move funds to the US Dollar.
Since the US Dollar is less vulnerable to volatility, the safer option could be to move funds to the US Dollar. This influx of USD investment from AUD could push AUD/USD lower.
China woes are back in the spotlight
China’s huge debt to GDP is back in the media spotlight, amid concerns that the rate has surpassed 400%. China’s huge borrowing and slowing economy could spell bad news for the Australian economy. China buys a lot of its raw materials from Australia, and any signs that China’s economy is declining will put investors off the Australian Dollar.
The other major concern for China is Donald Trump, who plans to curb the huge trade balance between the US and China. As is stands, the US has a $347 billion trade deficit with China, by which the US President plans to impose tariffs on China to balance the sheets.
Any such move could harm the Chinese economy, which already sits in vulnerable territory with its huge debt. Investors will be keeping an eye on the Chinese economy for any signs of contraction, and may pull funds out of AUD to move into USD in a flight for safety.