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AUD News: Aussie dollar at three-month high as Brexit is delayed again

1st November 2019

Trick or Treat! Halloween was yesterday, but the festivities have carried over to today!

Why? The trick lies in the fact that Brexit did not take place yesterday and has once again been extended. Boo. 

The treats, however, far outweigh this depressing news. First of all, it’s Friday, which is always cause for celebration. Second, Halloween candy is now on sale (run, don’t walk to your nearest Woolies, you’ll need to after all of the cheap candy you eat). Finally, the sweetest treat of all is that the Australian dollar is riding high against most major currencies, currently at a three month high against the USD. Now, one Aussie dollar will buy you:

0.6705 US dollars
71.2073  Japanese yen
0.5928 Euros
0.5117 Great British pound
0.8535 Canadian dollars
1.0379 New Zealand dollars
0.8841 Singapore dollars
1 packet of mini mars bars at Woolies 

While the AUD did trade lower against most major currency crosses overnight, it has seen a lot of upward pressure over the past few weeks that continues to push it higher. 

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What impacted foreign exchange markets this week?

In the USA

A few things are happening in the old US of A, so let’s break them down. 

US / China trade war

Things seem to be going well on the trade war front. It’s exciting not to have to write about yet another tariff increase. Trump has said that the US and China are working well together to secure a deal, and a new site to sign a tentative trade war truce. 

New site? Well, Trump and Chinese President Xi Jinping were hoping to sign the deal at the APEC summit due to take place in Chile mid-November. However, Chile has since cancelled the summit due to ongoing demonstrations. So, while this shouldn’t impact the trade deal, it doesn’t give the two countries as concrete of a deadline. The question is, where on earth will they sign the agreement we have waited so long to see?

Of course, Chinese officials have said they doubt they will be able to achieve a long-term trade deal purely because they think Trump is kinda shady and don’t trust how impulsive he is. 

Impeachment proceedings have been formalised 

The US House has voted 232-196 to proceed with a public impeachment investigation of President Trump. The Democrats have been having a lot of closed-door conversations for the past few weeks about the impeachment, and the formalisation of it means the Republicans can now come in and cross-examine all of the evidence. 

For the impeachment to succeed and get Trump convicted and kicked out of office, there needs to be a two-thirds majority. This may prove difficult considering the senate has a Republican majority. With this in mind, Trump’s removal currently seems unlikely. You never know, though, stranger things have happened.

US Federal Reserve cut interest rates

On Wednesday the Fed cut US interest rates by a quarter of a percent, bringing the new target range to 1.5% - 1.75%. This is the third cut in 2019 and was widely expected by markets, though certainly not as harsh as the US government had been hoping for. The Fed has signalled a pause in future interest rate cuts; however, the market is still pinning another 25 basis point cut by April 2020. 

All in all, the USD strengthened overnight; however, markets are sceptical that it may be close to reaching its ceiling for the time being. Whether this is the case remains to be seen, but it is something to keep in mind if you plan on travelling to the states in the next year or so. 

In Japan

Yesterday the Bank of Japan (BoJ) altered its guidance around its interest rate moves for both the long and short term. Japan currently has negative interest rates, and their forward guidance suggests that this will remain steady, or at slightly lower levels, until Spring 2020. 

With this in mind, markets expect the BoJ will go lower, cutting by ten basis points to -0.20% by January 2020. 

Despite this, the Japanese yen was boosted overnight due to the risk-averse mood in the markets. Both the yen and the USD are considered to be ‘safe investments’, so when markets are worried about the global economic performance, they will favour them over riskier currencies like the AUD and NZD. Hence why both the JPY and USD were up slightly overnight. 

In the UK

Long story short, the EU agreed to grant the UK another Brexit extension until January 31, 2020, and there will be a UK general election on December 12. 

On Wednesday the EU unanimously agreed to grant the UK with a ‘flextension’ until next year. It’s flexible, so if the UK sorts themselves out before that, then they are free to leave early. The EU hopes this time will allow for another election that will aid in getting the deal approved. 

Why the election? Currently, Boris Johnson does not hold a working majority in parliament, which means he is seriously struggling to get his Brexit deal approved. He hopes that the general election will change this, granting him the majority he requires to push Brexit proceedings along smoothly. 

Markets currently expect the conservatives to win and achieve their desired majority; however, there is a lot of volatility among electorates with considerable shifts in voting intentions since last year. 

With such high stakes, many are expected to vote tactically in support of their Brexit beliefs as opposed to normal partisan alignment. 

Should the conservatives fail to secure a win, the Labour party has promised another Brexit referendum. 

The news of the election and Brexit delay has put upward pressure behind the GBP. 

In Australia 

Later today will see the release of Australian October Manufacturing PMI, the RBA’s commodity price index and the Q3 Producer Price Index numbers. Markets expect this data will boost the value of the AUD to close the week on a high. 

Alright, the article is done. You can go to Woolies and get the cheap choccies now. See you next week. 

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