Aussie dollar boosted by US caution around Donald Trump

A risk-on mood for the greenback is providing a tailwind to the Aussie.

Trump’s emphasis on protectionism is also playing into the current risk-off mood in the US, which provides a tailwind for the Aussie.

The Australian dollar was higher in midafternoon trade on Monday, as the US dollar flagged after US President Donald Trump offered little in the way of new information on his economic policies when being sworn in on Friday.

Mr Trump spent more time on themes that might stoke trade tensions, an outcome that could pose a threat to a recovery in global economic growth, traders said.

At 3.40pm (AEDT), the Australian dollar was at US75.70 cents, compared with US75.76c late on Friday. It opened Monday’s session around US75.30c.

“At the turn of the year, the US dollar was priced for strong growth and rising yields. Now the pendulum is swinging towards trade wars and slower growth,” said Sean Callow, senior currency strategist at Westpac.

The US dollar is likely to trade softer at the start of the week “as the market unwinds expectations of an immediate fiscal stimulus from the new US administration,” said Rodrigo Catril, currency strategist at National Australia Bank.

“Trump’s emphasis on protectionism is also playing into the current risk-off mood,” he added.

US Treasury yields are leading moves in the currency market. “Caution is the theme for the week as the market will be very susceptible to Trump’s team policy announcements,” Mr Catril added.

Wednesday will bring fourth-quarter Australian inflation data, which will set the scene for the Reserve Bank of Australia’s first policy meeting this year in early February.

The overall picture from Australia’s fourth-quarter inflation data should be one of ongoing inflation restraint, said Michael Blythe, chief economist at CBA. Headline inflation may have grown at a faster pace in the second half of 2016 than in the first half. But underlying CPI measures should show inflation rates stuck around 1.5 per cent on-year, he said.

“It is difficult to imagine rate cuts against a background of resurgent commodity prices and uncomfortably high house price growth,” Mr Blythe said.

“Nor is it easy to see rate rises given residual downside risks to inflation, the disappointing third quarter GDP numbers and the slow progress in winding back unemployment,” he added.

Dow Jones