‘Unusual' thing happening to the Aussie dollar in wake of Trump tariffs, says Reserve Bank
The global uncertainty sparked by US President Donald Trump's tariff agenda has resulted in something unusual happening to the Australian dollar.
RBA assistant governor Sarah Hunter noted on Tuesday that the Aussie dollar has been behaving differently against the greenback than what we would historically expect.
'When the outlook for global growth weakens, the Australian dollar typically depreciates,' she explained in a speech at the Economic Society of Australia Business Lunch in Brisbane. This is because investors expect the Australian economy 'to be buffeted by the global headwinds and the RBA to respond with cuts to the cash rate'.
The fact that the Australian dollar is a 'risk-sensitive' currency also contributes to the depreciation as 'when global investors are worried, they tend to focus on reducing risk exposure, moving their capital to low-risk assets in countries like the United States, Switzerland and Japan.'
'This means the Australian dollar tends to lose value against these currencies,' she said.
When Trump announced his global 'Liberation Day' tariffs the Aussie dollar did as expected and fell, plummeting to below 60 US cents for the first time since the pandemic.
However in recent weeks, the Aussie has recovered against the greenback and has been sitting between 64 and 65 US cents which, according to Dr Hunter, is 'more unusual' in a continuing time of uncertainty.
Dr Hunter said this is in part due to a broad weakness in the USD after some global investors reduced their exposure to US assets.
'The weakness in the US dollar during a period of heightened risk is in contrast with many previous episodes,' she said, 'though it's too early to know whether this dynamic will continue.'
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