Aussie dollar falls on the Trump election bid

The Aussie dollar is on track for its worst month since September 2022 as markets price in a win for Donald Trump in next week’s US Presidential election.

The Australian dollar has fallen five per cent for the month of October, as markets factor in a Trump Presidency and potential tariffs on China.

Just a few weeks ago the Australian dollar was trading at an 18-month high at near US70c, but a spate of geopolitical issues has seen the Aussie dollar crash compared to the greenback.

In bad news for tourists and shoppers of international products, the Aussie dollar could fall further as strength in the US markets remains.

According to IG’s market analyst Tony Sycamore, the Aussie dollar will likely continue to face pressure if former president Donald Trump wins next week’s election for the Republican Party.

“Such an outcome is anticipated to result in higher tariffs, inflation, deficits and yields, potentially boosting the US dollar to the detriment of the Australian dollar,” he said.

On the flip side, should the Democrats hold the presidency – coupled with a divided Congress – it is more likely a status quo in terms of policies which could see the Federal Reserve continue to cut rates which could lift the Aussie dollar.

AMP’s chief economist Shane Oliver agrees, saying under Mr Trump there is a likely bigger budget deficit which will attract investors to park their money in US dollars.

“If you have more deficit spending in the US and it blows out the budget deficit, it means higher interest rates than otherwise would be, which tends to attract money into the US,” he said.

Australia’s currency is facing pressure due to a Trump Presidency, strong US economic data and a lack of clarity around China’s stimulus package.

Mr Sycamore said the Aussie dollar was also a victim of stronger-than-expected data out of the US, which could mean fewer rate cuts from the US Federal Reserve.

“The run of more robust economic data has prompted traders to revise their dovish outlook for aggressive Fed rate cuts into year-end, thereby boosting the US dollar.”

This includes better than expected non-payroll farm data that was released at the start of the month which saw 254,000 US citizens get a job compared to an expected 140,000.

The Aussie dollar is also dragging due to a lack of clarity around China’s stimulus package.

China is rumoured to be weighing up approving more than 10 trillion yuan ($US1.4 trillion) in additional borrowing in the coming years to shore up the economy and address local governments’ debt risks.

The initiatives included reducing mortgage rates for existing homes, reducing the amount of cash commercial banks are required to hold in reserves and helping local governments with their current debt issues, although nothing has been confirmed.

“There were a lot of expectations around China’s NPC standing committee meeting. That was originally slated for the end of this month,” Mr Sycamore said.

“The Chinese I suspect have pushed it back because they want to see the US election winner.

“If it’s a Trump victory they will have to go bigger. You don’t want to go too big if it’s a Harris victory as it doesn’t need to be as big.

Mr Oliver said if Trump wins the election and adds tariffs on the Chinese economy it will likely add further pressure on the Australian dollar.

“Tariffs make US industries more competitive compared to imports, which if Trump imposes tariffs then it is negative for imports which generally pushes the US dollar up,” he said.

“Of course if the US dollar blows out its budget deficit that it explodes or there is worried about defaults then it becomes a different story, that would be a negative for the US dollar,” Mr Oliver said.

“But that is not what markets are focused on and the US seems a long way away from that.”

Originally published as Aussie dollar falls on the Trump election bid