The Australian dollar is (oddly) rising – what does ‘sell America’ sentiment have to do with it? | Australian economy

When Donald Trump threatened to impose tariffs on his European allies during the Greenland conflict, the Australian dollar gained value against its American counterpart.

The move was strange, given that Australia’s currency typically falls during periods of global unease.

Once Trump withdrew his tariff threat after claiming a “framework” deal had been reached, the Australian dollar rose again.

The short-lived geopolitical crisis showed that bad news (Trump’s threat of tariffs) was good news for the Australian dollar, and good news (Trump’s removal of that threat) was also good news for the Australian dollar.

This has been a recurring theme since Trump’s inauguration.

“Sell America”

When Trump began his final term a year ago, the Australian dollar was trading below 63 US cents. It is now well above 68 US cents, representing a counterintuitive sharp rise over 12 months.

At the time of the inauguration, there was a lot of talk about the “Trump trade” supposed to fuel interest in the greenback thanks to a strong growth economic program.

_{Subscribe: Email AU Breaking News}

This has been replaced by the “Sell America Trade” whereby investors withdraw money from US assets, including its currency, due to increased economic and political risk from the Trump administration.

This point was underlined by Danish pension fund AkademikerPension during the week when it announced it would sell its US Treasury securities, worth around $100 million, blaming “weak US public finances”.

The notable exception to criticism of the U.S. economy is the booming artificial intelligence-based technology sector, which has helped support growth in stocks and the economy as a whole.

The “sell out America” sentiment has grown stronger in recent weeks due to 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 context, the Australian dollar has prospered.

AMP’s head of investment strategy and chief economist, Shane Oliver, says that in a “normal crisis” the US dollar would rise due to its status as a traditional safe haven.

“The difference is that this period of uncertainty was fundamentally seen as negative for the United States,” Oliver says.

“Every time Trump does one of these erratic things, starting with the tariffs last year, the attack on the Fed, the attack on universities, the attack on immigrants, the attack on the rule of law and the attack on global institutions, American exceptionalism erodes and investors demand a risk premium to invest in the United States.

“This puts downward pressure on the U.S. dollar.”

Go for gold

The “Sell America Trade” is heavily crossed with another strategy called the “Depreciation Trade,” which is based on the belief that the U.S. currency is losing its status as a trusted safe haven due to massive government debt and persistent inflation.

One popular response to this deterioration is to buy gold, the price of which is at an all-time high.

Australia’s mineral-tinged currency is a way for investors to gain exposure to gold and silver, which is another precious metal in high demand. Australia also has a huge iron ore sector, prices for which have proven resilient.

Michael McCarthy, a Sydney-based financial markets commentator, says commodity prices are much higher than forecasters predicted a year ago.

“All of these commodities are trading at much higher levels than expected and that’s 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 big exporter of raw materials.”

Australia’s strong jobs market is also pushing the Australian dollar higher as it fuels concerns that the economy is too hot and the Reserve Bank may have to raise interest rates as soon as next month.

In general, a rise in interest rates increases the value of a currency.

At the same time, the Federal Reserve is expected to cut rates, creating a divergence in the outlooks of the US and Australian central banks.

All of these factors have made the Australian dollar a remarkable performer since Trump’s inauguration, and many analysts expect it to continue to grow, even if not in a straight line like it did last week.

But the outlook can change quickly, especially when it comes to interest rates. If global skirmishes turn into a major economic event, the Australian dollar could be sold off massively, as was the case during the global financial crisis.

In such a scenario, demand for raw materials would fall, significantly reducing exports and the value of the Australian dollar.

Jonathan Barrett is the economics editor of Guardian Australia