Australian & New Zealand Dollars: AUD/USD Exchange Rate Falls to 92 cents level, NZD/USD tumbles as US Declares Airstrikes against ISIL

August 8, 2014 - Written by Frank Davies

STORY LINK Australian & New Zealand Dollars: AUD/USD Exchange Rate Falls to 92 cents level, NZD/USD tumbles as US Declares Airstrikes against ISIL

The Australian Dollar (AUD) exchange rate tumbled to a two-month low against the US Dollar (USD) on Friday after US President Barrack Obama authorised the use of airstrikes against the Islamic State of Iraq and the Levant (ISIL).

The move by Obama comes after reports of ISIL fighters capturing Iraq’s largest Christian city. The US air force will now begin an airborne operation to bring assistance to thousands of minority Iraqis besieged on a mountain.

The stranded Yazifi refugees are facing genocide according to the US and as such, the US air force was authorised to use force in order to assist the Iraqi army in breaking the siege.

‘When we face a situation like we do on that mountain, with innocent people facing the prospect of violence on a horrific scale and we have a mandate to help - in this case a request from the Iraqi government. When we have unique capabilities to act to avoid a massacre, I believe the United States cannot turn a blind eye. Earlier this week, one Iraqi said no one is coming to help. Well, today America is coming to help,’ the president said in a late-night statement from the White House.

Investors were also concerned over the situation in Ukraine. Russian forces massing on the Ukrainian border could launch direct military intervention under the guise of a humanitarian mission warned NATO on Wednesday.

The immediate reaction has been out of risk currencies and out of commodity currencies like the Australian dollar, there are further concerns now about global growth prospects. A clear knock-on effect here is a higher oil price and a choking off of a very fragile recovery in
Europe,” Michael McCarthy, senior currency strategist at CMC Markets.

Because of the geopolitical concerns, investors fled from the riskier assets of the Australian and New Zealand Dollar to the safety of safe haven assets such as the Japanese Yen, Swiss Franc and US Dollar.

The ‘Aussie’ did not react despite the release of official trade data out of China showing that the exports surged by 14.5% last month, a figure that was more than double the amount forecast by economists. The world’s second largest economy saw imports fall unexpectedly by 11.6%.

“That data should speak directly to company prospects, I would’ve thought that would be a big positive for the Aussie,” Mr McCarthy said. “But it’s an interesting phenomenon, when we see weak data out of China, the market reacts, when we see strong data, they don’t.”

The New Zealand Dollar meanwhile also took a hammering against the US Dollar and other major peers after the nation’s biggest export of dairy goods declined again. Since February, milk prices have fallen by 41%.

The ‘Kiwi’ also remains under pressure from threats by the Reserve Bank of New Zealand that it will intervene in the currency markets in order to force the currency lower. Further support has also evaporated as bets have cooled over how many further interest-rate increases there will be as inflation remains benign and growth slow.

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