TGIF, everyone. After an optimistic start to the week, the Aussie dollar has taken a bit of a tumble. As it begins to dust off its knees today, one AUD will buy you:
Don’t forget to grab your currency from our Click Frenzy Sale
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Click Frenzy aside, the key elements putting downward pressure on the AUD were stronger than expected US GDP growth in late 2018 and poor economic data.
The USA is us-slaying economic growth
On Thursday, the US GDP growth rate for Q4 2018 was released. A rate of 2.6% exceeded market growth expectations. As a result, the the value of the USD was bolstered. This wasn’t great for the Aussie dollar or Aussie tourists.
Despite this increase, there are no major changes in the US Federal Reserve Bank’s ‘patient’ stance on monetary policy. The current global economic climate, and its effect on the US economy, is encouraging the Fed to keep interest rates on hold for the time being. This is good news for Aussie travellers, as an increase in US interest rates would put further downward pressure on the value of the AUD as investors seek a higher return from the USD. Less demand for the AUD = decrease in value.
A Rachel & Ross affair: the on-again-off-again saga with China and the US
Negotiations between the US and Chinese delegates continued this week, as they seek to agree on a trade deal that meets the needs of both countries.
These negotiations can be likened to that ‘on-again-off-again’ relationship that your friend always seems to update you on. One minute things are dandy, the next, neither party is speaking to each other, despite both desperately wanting to be together. It’s complicated.
The good news is that White House economic advisor Larry Kudlow said both parties had made 'terrific’ progress on negotiating a deal. It seems both countries are on the verge of a ‘historic’ trade deal. While it’s safe to say both countries are safely in the on-again phase, the positive news did not have much of an effect in cushioning or reversing the AUD’s decrease in value. Perhaps this is because markets had already priced in, or adjusted their predictions to account for this positive news. Or perhaps it’s a case of the boy who cried wolf, with markets expecting that we could very swiftly move into the all familiar off-again territory.
Only time will tell how this pans out. It is in Australia’s best interest for the trade deal to go as smoothly as possible, as any tariffs increase on Chinese exports into the US will have negative flow on effects on the Australian economy and the AUD.
The brakes are slamming on China’s economy
A perfect example of these flow on effects is the fact that the AUD suffered as a result of poor economic data out of China. On Thursday, China released their official manufacturing Purchasing Managers Index (PMI) for February. The index signalled the third consecutive month of contraction for Chinese manufacturing. This raises fresh concerns about economic slowdown in China.
China is a major trade partner for Australia, with one third of our exports bound for Chinese ports, so any slowdown in their economy is bad news for Aussie business and travellers alike.
Trump and Kim Jong Un cancelled lunch
This week saw President Trump and Korean Leader Kim Jong Un meet in Vietnam. Their bromance appeared to be flourishing until yesterday, when their summit was abruptly cancelled. Reports show that there wasn’t any noteworthy progress on nuclear disarmament, which is kind of disappointing because nuclear weapons scare the bejesus out of me / the rest of the planet.
Fingers crossed the leaders can reignite both the negotiations and their bromance soon. This abrupt cancellation added to risk sentiment in the market, which did not help the AUD.
Our Aussie dollar is considered a risky currency, so its value thrives in times of greater market certainty. When there is perceived to be greater risk in the market, investors will seek safer currencies like the United States dollar and Japanese yen.
In a shocking turn of events, nothing has happened with Brexit.
That’s a lie… a few things happened this week. By ‘things’ we mean ‘announcements were made but Britain still has no idea what is going on.’ Long story short:
- There was meant to be a ‘meaningful vote’ on Wednesday, but Theresa May delayed that until March 12, 2019.
- Following this, the Labour party announced that if their alternative Brexit plan was rejected, they would support a second referendum.
- This Labour announcement triggered Theresa May to make her own announcement on Tuesday, being that should her deal fail on March 12, British MPs will have the opportunity to vote in favour of a no deal on March 13.
- If both of these votes fail (let’s face it, there is a high probability that they will), on March 14 there will be another vote to request a delay to the March 29, 2019, Brexit deadline.
So, in reality, it’s a case of ‘same (insert word that I can’t publish), different day’ on the Brexit front.
If you are planning a trip to the United Kingdom in the next few months, we recommend educating yourself on how Brexit could affect your travels
. Sign up for rate alerts
while you’re at it, and that way if the AUD reaches your preferred level against the GBP (or any other currency), we can let you know.
Definitions for those of us playing at home:
Purchasing Managers Index (PMI)
An index that summarised the results from a monthly survey completed by enterprise purchasing managers about aspects such as purchasing, production and logistics. The PMI is a common tool used to monitor macroeconomic trends, therefore influencing exchange rate forecasts.
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All rates are quoted from the Travel Money Oz website, and are valid as of 1 March 2019.
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