The Australian dollar is (oddly) rising – what does ‘sell America’ sentiment have to do with it? | Australian economy
The Australian dollar gained value against its US counterpart as Donald Trump threatened tariffs on European allies during the Greenland dispute.
The move was strange, given that Australia’s currency often falls during periods of global unrest.
The Australian dollar rose again after Trump withdrew his tariff threat after claiming a “framework” agreement had been reached.
The short-lived geopolitical crisis showed that bad news (Trump threatening tariffs) was good news for the Australian dollar, and good news (Trump eliminating that threat) was also good news for the Australian dollar.
This has been a theme since Trump took office.
‘Sell America’
When Trump began his final term a year ago, the Australian dollar was trading below $63c. It is currently well above US68c, which represents a counterintuitively strong 12-month upside.
There was a lot of talk during the inauguration about the “Trump trade,” which is expected to increase interest in the dollar through a high-growth economic agenda.
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This has been replaced by the “sell America trade,” in which investors take money out of U.S. assets, including currency, due to rising economic and policy risks associated with the Trump administration.
This point was emphasized by the Danish pension fund AkademikerPension last week when it announced it would provide this funding. US sells treasury bondsIt is worth approximately US$100 million, blaming the US government’s weak finances.
The notable exception to criticism of the U.S. economy is its burgeoning AI-led technology sector, which has helped fuel growth in stocks and the economy more broadly.
“Sell America” sentiment has gained momentum in recent weeks amid the Greenland tariff dispute, the U.S. government’s attack on the independence of the Federal Reserve and ongoing concerns about government debt levels.
In this environment, the Australian dollar started to rise.
Shane Oliver, AMP’s head of investment strategy and chief economist, says in a “normal crisis” the US dollar would rise because it is a traditional safe haven.
“The difference was that this period of uncertainty was seen as inherently negative for the United States,” Oliver says.
“Every time Trump does one of those unbalanced things, starting with taxes last year, attacking the Fed, attacking universities, attacking immigrants, attacking the rule of law, and attacking global institutions, US exceptionalism erodes and investors demand a risk premium for investing in the US.
“This puts downward pressure on the US dollar.”
go for gold
The “sell America trade” has a strong crossover with another strategy called the “depreciation trade,” which is based on the belief that the U.S. currency is losing its status as a reliable safe haven due to large government debts and persistent inflation.
One popular response to this depreciation was to buy gold, which was at record prices.
Australia’s mineral-toned currency is a way for investors to access gold and silver, another in-demand precious metal. Australia also has a large iron ore sector where prices remain resilient.
Sydney-based financial markets commentator Michael McCarthy says commodity prices are much higher than forecasters expected when making their predictions a year ago.
“All of these commodities are trading at much higher levels than expected and that is fueling the investment markets,” says McCarthy of online trading platform Moomoo.
“That’s one of the reasons why the Australian dollar is strong, because we’re a major commodity exporter.”
Australia’s strong employment market is also pulling the Australian dollar higher as it fuels concerns that the economy is too hot and the Reserve Bank may need to raise interest rates as early as next month.
Generally, increases in interest rates increase the value of the currency.
Meanwhile, the Federal Reserve is expected to reduce interest rates, which will create a difference in the outlook for the US and Australian central banks.
All these factors have led to the Australian dollar being a standout performer since Trump’s inauguration, and many analysts expect it to rise further, although not in a straight line as it did last week.
But the outlook can change quickly, especially when it comes to interest rates. If any global conflict turns into a major economic event, the Australian dollar may sell off heavily, as it did during the global financial crisis.
In such a scenario, demand for commodities would fall, severely damaging exports and the value of the Australian dollar.
Jonathan Barrett is Guardian Australia’s business editor
