As of 1pm AEST, the Australian dollar reached 65.60 US cents, marking its highest value against the US dollar since late November. However, by 4pm, it had slightly diminished to around 65.44 cents, maintaining its position significantly higher than earlier this year.
In April, the Australian dollar briefly dipped below 60 US cents amid turbulence following Donald Trump’s controversial tariffs. Its recent performance is attributed not only to the Aussie’s strength but also to a weakened US dollar, largely influenced by ongoing criticism from Trump directed at Federal Reserve Chairman Jerome Powell.
Trump has consistently attacked Powell, whom he appointed in 2017, over the Fed’s hesitance to reduce interest rates. Following Powell’s remarks to Congress that suggested the tariffs could escalate inflation and hinder rate cuts, Trump labelled him as having a “low IQ” and even described him as “terrible”.
Despite these criticisms, Powell has retained his position, with his term extending until next May, having also been renewed by President Biden. Trump has indicated he is considering potential successors for Powell, noting that he knows a few suitable candidates.
This political backdrop has contributed to a significant decline in the US dollar, which fell to its lowest level since February 2022. Analysts, like Francesco Pesole from ING, suggest that the perception of the Fed’s independence is crucial to maintaining the dollar’s status as a dominant global currency. Political pressures perceived to interfere with the Fed’s decision-making processes may lead investors to reassess the dollar’s stability.
Consequently, concerns around the Fed’s autonomy have instigated a broader decline of the US dollar. Investors are increasingly wary of potential political influence on monetary policy, prompting adjustments in their outlook on the currency’s future.
In summary, the interplay between the performance of the Australian dollar and ongoing political tensions surrounding US monetary policy highlights the intricate relationship between currency values and geopolitical dynamics.