The US dollar posted its worst January in three decades after US President Donald Trump and his trade adviser accused Germany, China and Japan of exploiting currencies to gain a trade advantage over the US.
The Trump administration’s willingness to break with tradition and comment about currency valuations has raised fears that the US might lead the world into a new round of currency wars, angering and unnerving allies.
“Suspicions that Washington may increasingly focus on the value of the dollar were catapulted into the limelight,” ANZ analysts wrote in a note.
“The early policy implication is that dollar competitiveness could have a prominent role to play in Trump’s ‘America First’ agenda.”
While a weaker US Dollar will make for cheaper holidays in the USA, it does not bode well for exports to the United States, nor for that matter domestic holiday destinations. Major commodities area also affected as most of these trade in US Dollars.
The recent changes in both the strength of the Australian and the weakness of the US dollar underscore how much can change in a week, often unexpectedly, and how difficult it can be to forecast the direction of a currency.
The AUD reaching above ¢75 against the USD with some predicting a rise to ¢80 stands in stark contrast to many having forecast a drop below ¢70 on the news of an improving US economy with near full employment and another interest rate hike in the near future.
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