Australian Dollar underperforms despite positive outcomes of Trump-Xi meet

The Australian Dollar (AUD) trades lower against its major currency peers, is down 0.25% to near 0.7240 against the US Dollar (USD) during the European trading session on Thursday. The antipodean faces selling pressure even as comments from both United States (US) President Donald Trump and Chinese leader Xi Jinping indicate that trade relations between both economies will improve from hereon.

Improving US-China trade relations is a favorable scenario for the Australian Dollar, given that the Australian economy relies heavily on its exports to Beijing.

Chinese leader Xi said at the state banquet in Beijing that both the US and China should become partners and not rivals. Xi added, “Rejuvenation of China and 'Make America Great Again' can go hand in hand.”

Meanwhile, US President Trump stated at the state banquet that the visit to China is “historic”, and has invited Chinese leader Xi to White House on September 24.

On the domestic front, swaps suggest the possibility of the Reserve Bank of Australia (RBA) delivering an interest rate hike in August is about 80%, Reuters reports. This would be the fourth interest rate hike by the RBA this year. The RBA has hiked its Official Cash Rate (OCR) in every policy meeting so far this year.

Meanwhile, the US Dollar trades firmly due to increased expectations that the Federal Reserve (Fed) will not cut interest rates this year. Dovish Fed bets have squeezed significantly due to accelerating inflationary pressures in the wake of higher energy prices.