Above: FBI veteran Robert Mueller will investigate allegations surrounding Donald Trump.

The Australian Dollar is seen losing the gains made earlier in the day on the back of a renewed bout of investor unease concerning developments concerning the under-fire US adminisistration.

AUD had earlier received a boost from the April jobs report overnight which showed a +37.4k increase in employment.

Total employment growth over the year was 1.3% which remains below the average growth rate over the past 20 years of 1.8%.

While the domestic news provided near-term relief for those looking to spend their Aussie Dollars on the international market, it must be remembered that the currency remains largely beholden to global, external forces.

“We see the near-term risks stemming from the external environment spelling further pain for the Aussie dollar,” says Viraj Patel, an analyst with ING Bank NV in London.

The ongoing unease surrounding the twists and turns in the Trump-Russia scandal dominate sentiment.

The latest reveal, as reported by Reuters, is that the Trump campaign had at least 18 undisclosed contacts with Russians and other people close to Vladimir Putin.

Michael Flynn and other advisers to Donald Trump’s campaign were in contact with Russian officials and others with Kremlin ties in at least 18 calls and emails during the last seven months of the 2016 presidential race, current and former U.S. officials familiar with the exchanges told Reuters.

The previously undisclosed interactions form part of the record now being reviewed by FBI and congressional investigators probing Russian interference in the U.S. presidential election and contacts between Trump’s campaign and Russia.

The Trump Risk and the Australian Dollar Hedge

Recall, Trump’s campaign promises to increase spending and cut taxes as been a significant driver of global foreign exchange movements since his win in November.

Markets are now trying to work out what scenarios are likely to play out, and how it could potentially impact on the Australian Dollar.

“Investors are contemplating two Trump worlds: an increase in geopolitical tensions or a revival of US reflation sentiment. Both are negative for the rate- and risk-sensitive AUD, which makes selling the AUD a good way to hedge for White House policy risks,” says Patel.

ING are looking for a fall in the Australian v US Dollar exchange rate to the low 0.70s this summer, “with a rebound to 0.80 a 2018 story.”

All being equal, we would in turn expect this to translate into underperformance by the Australian Dollar in the crosses, including the Pound to Australian Dollar exchange rate.

GBP/AUD has been in a solid uptrend since Mid-March when levels at 1.60 were rejected and we now see the pair in the vicinity of 1.7450.

>> Update: Best international payment rate on GBP vs AUD now seen at 1.7344 as banks seen offering in region of 1.7012-1.6889. More details here.

US Dollar “Adversity to Persist”

The question of whether or not President Trump should be impeached has been one that has dominated global market discourse over the duration of the week.

The saga may have however had a line temporarily drawn under it after the US Justice Department announced that it was appointing former FBI director, Robert Mueller, as special counsel to lead the investigation into Russia’s role in the 2016 US elections.

The move received support from both sides of the aisle, while Trump himself remains undeterred.

The stability seen on markets as a result may also account for the near-term strong performance in the Australian Dollar that we are witnessing.

Looking ahead, ING say there are three key messages for investors to consider:

1. While the tail risk of a Trump impeachment is unlikely to fully recede, there needs to be another layer of bad news for markets to adversely react again. All eyes will be on the investigation, but it may pay to trade the facts here.

2. Fears over a delay to potential tax reforms may be overblown; a number of Republicans (including House Speaker Paul Ryan) have pledged to continue working on their policy agenda since the ‘Comey memo’ incident. Behind the scenes, key players (Kevin Brady, Steven Mnuchin and Gary Cohn) will be thrashing out the details of a White House tax plan with Capitol Hill today. Our framework still sees a Trump tax plan reaching Congress around 4Q17.

3. We doubt the above is the main driver for the latest fall in US yields and USD weakness, instead noting the re-pricing of expectations over a June Fed rate hike (down now to 75%). Investors are right to question this; when looking at the ‘trifecta of factors’ needed for a Fed hike – US data, financial conditions and market expectations – one could argue that the first two look a bit less convincing than was the case in March (especially if US equities remain soft).

“A dovish Fed re-pricing still remains a risk to the US Dollar but expect stability for now,” says Patel.