By guest contributor Stuart Talman, Director of Australian Sales, XE.com.
Given the strong headwinds currently buffeting the Aussie dollar and these winds only intensifying further through the past week, it was quite the head scratcher that the Aussie ended the week higher, closing up circa 0.85%.
The week’s headlines were dominated by the meltdown in US equity markets caused by a spike higher in long-term US interest rates – the US ten year bond yields climbing to their highest levels in 7 years.
In simple terms – when interest rates rise, equity prices fall.
But we’ve known about this for some time as the US Fed continues to raise interest rates. With equity market valuations still at lofty levels, the past week was a reminder for investors that historically accommodative financial conditions are a thing of the past and heightened volatility is set to continue as other factors such as emerging market stress and the deteriorating US-China trade relationship also add to the bumpy ride.
Last week commenced with the Aussie dollar having fallen to fresh multi-year lows and it appeared inevitable that the psychologically important 70 US cent level would give way.
As equity markets produced their largest daily fall since February and Trump once again ripped into the Fed, AUDUSD once again flirted with 0.7000. With global markets on shaky ground during the front end of the week, it seemed a foregone conclusion that the Aussie was set for another move lower.