AUD News: Domestic data and trade war progress are giving Aussie travellers more cash in their back pocket.

The Australian federal budget was handed down on Tuesday night. As you can imagine, as with most political announcements, there were positives and negatives depending on your point of view. The budget itself did not have much of an impact on the value of the AUD though; instead, other factors including interest rates and improved domestic data have influenced our little Aussie battler. So, with this in mind, one Aussie dollar will buy you:

 

0.692 US dollars

75.9647 Japanese yen 

0.6078 euros

0.523 Great British pound

0.8936 Canadian dollars

1.017  New Zealand dollars

0.9087 Singapore dollars

 

 

On Tuesday the Reserve Bank of Australia (RBA) kept rates on hold at 1.5% for their 29th consecutive meeting. The last change we saw in interest rates was in August 2016. Markets expected interest rates would remain on hold, especially after last week’s unemployment data indicated the rate dropped below 5%. With that in mind, RBA Governor Philip Lowe, did mention that ‘downside risks’ to the global economy had increased in his accompanying statement. 

 

What does this mean? The downside risks refer to the overall slowing of the global economy. As an economy slows, it is highly likely central banks will choose to decrease interest rates to encourage spending in the hope it will speed the economy back up. Whilst a drop in interest rates might be good for home loan repayments, it isn’t so great for the Aussie dollar as it means investors are getting a lower return. As a result, investors may choose to move their investments elsewhere in order to seek a higher return. 

 

Interest rates aside, we have also seen some improved economic data come through in the last 48 hours. On Thursday, data was released that showed a large trade surplus off the back of higher iron ore prices and a decrease in imports. Our retail sales data was also better than expected. 

 

Domestic data remains pretty mixed, as markets are still feeling the negative impact of house prices falling. However, on the whole, compared to the last couple of months things appear to be reasonably healthy on the domestic front. 

 

Although quite a lot of economists are still predicting a couple of interest rate cuts by the end of the year, at this stage it is tough to mount a case that this scenario will ensue; however, things can change quickly, especially in financial markets. An improvement in domestic data will most likely lead to rate cut expectations being priced out or removed from forecasts of AUD movements. Such removal could potentially put a floor under the Australian dollar. 

 

There are media reports that President Trump and Chinese Vice Premier Liu He will meet at 7.30am AEDT to discuss a trade deal between their two economies.  Yesterday it was also reported that President Trump wants to announce the date of a summit with President Xi.  

 

Realistically, a summit would only be announced if a trade deal had already been agreed upon. China has acknowledged the United State’s’ issues with intellectual property theft, forced technology transfer and cyber hacking; welcome news for markets, as it means they may be working towards a mutually beneficial resolution. Any positive news about this trade deal could put upward pressure on the value of the Aussie dollar, especially against the euro, which is currently struggling. 

 

Today will also see the release of the US Non-Farm Payrolls (NFP) data. This data accounts for employment in goods, construction and manufacturing companies, excluding (as the name would suggest) farm workers, private household employees and non-profit organisation employees. The market is tipping an increase of 177 thousand jobs, with the unemployment rate remaining steady at 3.8%. Increasing jobs is a good proxy for underlying economic growth; however, said growth is also dependent on average household earnings. 

 

When considering the current market sentiment, today's NFP could be quite influential on the value of the USD. Should it be positive, the upward pressure on the USD could result in an adverse effect on the value on the AUD. 

 

There hasn’t been a great deal of progress since this time last week. As it stands the UK has a week to sort themselves out; otherwise they will crash out of the EU with no deal next Friday the 12th of April.

 

Prime Minister Theresa May is currently seeking a further extension to the Brexit date from the EU. British MPs voted in 313 to 312 in favour of this extension. Ironic that they keep voting for extensions instead of making the most of the extra time they have been given to find a suitable withdrawal agreement.  

 

Whether or not the United Kingdom is granted an extension is dependant on Prime Minister May delivering a credible and realistic way forward. 

 

The lack of Brexit progress has lead to slight weakness in the value of the GBP against the AUD, which is good news for Aussie travellers. It’s worth signing up for rate alerts if you are heading to the UK soon, that way we can let you know when the AUD/GBP meets your preferred rate.