As the dust (or snow) settles on a big week in Australian economic data, the Aussie dollar continues to show off its resilience to finish the week pretty much where it began. All eyes have been on domestic economic data this week, with the RBA interest rate decision, GDP figures, retail turnover and balance on goods and services all being released without a moment to pause between them. Even though these economic results came in softer than expected, international pressures are still giving the AUD a hand in maintaining its recent levels. Today, 1 Aussie dollar will buy you:
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RBA cuts interest rates, GDP figures slide, but the AUD keeps hanging on
It’s been a busy week for the RBA and Australian Bureau of Statistics, with a suite of key economic data being released to waiting throngs of journalists and economists. On Tuesday, the RBA made their broadly telegraphed decision to cut interest rates by .25 basis points, taking the cash interest rate down to a new historic low of 1.25%. No real surprises there.
In his explanatory speech, RBA Governor Philip Lowe emphasised that the domestic economic outlook remains positive, with the downside pressure coming from the intensification of international trade disputes. He did also hint at the possibility of a further rate cut this year if unemployment remains above 5% and in order to push inflation into their target zone. As expected, due to the market having ample time to price in the .25% rate cut, the AUD remained relatively unchanged compared to the GBP and USD.
In other eagerly awaited news, GDP figures were released on Wednesday, showing the Australian economy has grown at its slowest pace in almost a decade over the first quarter as household spending continued to fall. Despite market consensus of a 0.5% growth for the quarter, the actual number was slightly lower at 0.4%. Again, this result was not unexpected by the market and the Aussie dollar barely moved a muscle in response.
Like I said, this was a busy week for economists and it was rounded out by the release of retail turnover figures and balance on goods and services imported and exported for April. Following the trend of recent economic indicators, both results fell short of market expectations yet failed to result in a drop in value for the AUD.
While these results were underwhelming, in a positive sign for the AUD and Aussie travellers, it doesn’t appear they were that surprising for the market. Let’s hope the AUD has found some solid support and can focus on gaining back some of the recent ground lost.
No-deal Brexit still weighing heavily on the Pound
With Conservative Party heavyweights duking it out for a chance to lead the country to Brexit by October 31st, nothing much has really changed this week. For GBP markets, the uncertainty of having a number of MP’s seemingly willing to take the UK into a potentially disastrous no-deal Brexit has kept investors on the sidelines and ensured the AUD continues to perform solidly.
Following Tuesday’s decision from the RBA to lower the cash rate, the Pound had a slight upward move against the AUD but it appears to have been short lived. Even President Donald Trump’s presence in the UK and a promise of a ‘phenomenal’ trade deal with the US post Brexit wasn’t enough to boost the GBP’s performance against the AUD.
With an abundance of uncertainty surrounding Brexit and the possible economic ramifications of a no-deal solution, it looks like the Aussie dollar is poised to hold around this level against the Pound until further data is released in the coming months, or a new Conservative Party leader is chosen.
US stocks rebound as Federal Reserve contemplates rate cut of their own
May wasn’t a great month for the US stock market, so it wasted no time in moving positively on news this week from Federal Reserve Chairman, Jerome Powell that the central bank will act to continue economic expansion if the Trump Administration’s trade tariffs weaken the economy. In this case, ‘acting’ is Federal Reserve speak for dropping interest rates if the labour market and inflation figures don’t shape up. “We do not know how or when these issues will be resolved,” Chairman Powell said of the China and now Mexico Trade Wars and it is obvious that this uncertainty is being closely monitored by the Federal Reserve moving forward.
The good news for Aussie travellers is that on this news, the AUD ticked up slightly higher against the USD, in a sign the market is beginning to really price in at least 1 interest rate cut this year. If that happens, or if US economic data continues to come in under expectations, expect the value of the AUD to hit a bit more of an upward trajectory.
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