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AUD News: Surprisingly strong data lifts the AUD before the federal budget is handed down tonight

2nd April 2019
It’s been a reasonable start to the week for the Australian dollar after improved Chinese data was released over the weekend; perhaps signalling, at the very least, a slow down in the global slowdown. With this in mind, one Aussie dollar will buy you:
 
0.6914 US dollars
0.6018 euros
 
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There was a little bit of a change in mood, or risk sentiment, to start the week with surprisingly strong data released out of both the United States and China. 
 
Chinese manufacturing levels were released for March and showed the first increase in four months. Similarly, the March manufacturing levels in the USA were also stronger than expected, seeing a significant pickup since February. 
 
The positive nature of this data seemed to drown out the Eurozone’s current weak results. This gap was amplified by the dovish annual report from European Central Bank President, Mario Draghi. In other words, Draghi’s sentiment was pretty downcast as the European economy is lacking growth. 
 
The offset of the US and China’s data improved risk sentiment in financial markets which in turn provided some welcome upward pressure on the value of the Aussie dollar. The AUD is considered a somewhat risky investment, so we often see its value increase when markets are doing well, or are ‘risk-on’,  as investors feel more confident dabbling in riskier currencies. 
 

In Australian news

This ‘risk-on’ sentiment was supported by the release of NAB’s Australian Business Confidence Survey for March. The NAB report revealed a strong improvement in operating conditions for most sectors compared to February. Crude oil and iron ore, two of Australia’s main exports, also saw price increases that further bolstered the AUD’s value. 
 
Today, the Reserve Bank of Australia will release its monthly decision on interest rates. Markets are not expecting any movement; however, there is a chance that the accompanying statement could provide rhetoric signalling rate cuts in the future. Interest rate cuts do not help the value of the Aussie dollar, as it makes it a less appealing option for investors seeking more significant returns. 
 

The Australian federal budget

In other exciting news, tonight will see the release of the Australian federal budget. 
 
My year 12 economics teacher used ‘budget day’ as a brilliant excuse for cake. Once the budget was released, we would divvy up the cake based on how the federal budget divided spending. You were cheering if you landed the social security piece, as you ended up with a pretty substantial chunk of cake. Fewer cheers were heard by those with the environmental protection section though, as they were generally only allocated a few crumbs. 
 
Cake aside, despite attracting a lot of headlines it is unlikely the budget will cause any significant market movements. 
 

Brexit

After Theresa May’s withdrawal agreement was voted down for the third time last week, a result which waved the UK’s right to a May 22 extension, yesterday members of parliament held more indicative votes in the hope of finding a majority. 
 
There were four indicative votes, none of which commanded a majority. The ballots and results included:
  • The prospect of remaining in a Customs Union with the EU was so close, yet so far, as the idea was defeated 273 to 276.
  • They said ‘yeah, nah’ to staying in both the Single Market and Customs Union, with a defeat of 261 to 282.
  • Don’t even try revoking Article 50 either, because it was voted down 191 to 292.
  • The thought of holding another EU referendum clearly left a bad taste in their mouths as well, losing 280 to 292.
 
Where does this leave the UK? Well, as my dad would say, they are well and truly up the proverbial creek without a paddle. They have less than two weeks until the April 12 Brexit deadline and are stuck in a pretty gnarly political deadlock. If they fail to find an agreement or secure another extension by April 10, the UK will crash out of the EU with a no deal. If they do achieve an extension, they will be required to take part in the upcoming European Parliament Elections. 
 
Opposition leader Jeremy Corbyn is calling for a third round of indicative votes, and Theresa May is considering putting her withdrawal agreement forward for a fourth vote. 
 
Despite this saga slowly killing the souls of those keeping up with the drama, the last few days of Brexit happenings have proven quite useful for the value of the Aussie dollar against the Great British pound. If you had exchanged $2000AUD for pounds last Wednesday the 27th of March, you would have taken £18.60 less then if you had traded the same amount today. To find out more, visit our pound currency page.
 
Avoid missing out on extra holiday cash by adding Rate Guard to your transaction in store. It’s free, and if the exchange rate improves within 14 days, like the example above, we will refund you the difference*. Pretty neat, hey?
 
On that note, I’m off to Woolies to buy a mud cake. 
 
 
Definitions for those of us playing at home:
 
Dovish vs Hawkish
 
These are terms that refer to the general sentiment of a country’s central bank when talking about monetary policy. 
 
The bank will take a hawkish stance when they want to prevent excessive inflation. This is often done by increasing interest rates. Raising interest rates generally puts upward pressure on the value of that country’s currency, as investors can now get a higher return. 
 
The bank will take a dovish stance when the economy is not growing, and the government is seeking to guard against deflation. You guessed it; this could lead to decreasing interest rates which would put downward pressure on the value of the currency. Just keep in mind that this value is still relative to other countries, so a dovish stance is not always bad news for the value of the currency. 
 
An easy way to remember: hawks fly higher than doves. So when markets talk about things being hawkish, it generally means things are going up. You usually see doves on the ground, so if there is the talk of things being ‘dovish’, things may be going down. 
 
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All rates are quoted from the Travel Money Oz website and are valid as of 2 April 2019
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