Overnight the market’s risk averse mood persisted as the Aussie dollar continued to edge a little bit lower against most major currencies. It currently sits around 0.7026 against the USD.
The key reasons behind the downward pressure on our Aussie dollar are:
- Global equity and commodity markets are taking a hit this week (in other words, people are trading less money and goods on the global market)
- The release of less than ideal Australian economic data
- Continued worries about the US/China trade war
Australian economic data
Sounds boring, I know (especially on a Friday), but we need to chat about it to understand what is happening with the Aussie dollar.
Australian retail sales data was released yesterday, indicating that retail sales increased 0.3% in October. With Christmas just around the corner, Aussie consumers (aka all of us braving the local mall in search of the perfect Chrissy gift) are facing a few headwinds; mainly low income growth and lower house prices.
“I understand why lower income would affect us (less money to spend), but surely lower house prices are a good thing?”, I hear you say.
Whilst first home buyers may be doing a happy dance, falling house prices has an effect on consumer sentiment and perception of wealth. In other words, people stop spending as much when their house price doesn’t rise.
The Reserve Bank of Australia (RBA) Deputy Governor, Guy Debelle, made a speech last night that is being analysed pretty closely today. In the speech, Debelle noted that the RBA is watching house prices to see if their falling prices will have a negative impact on the economy. In addition to this, the RBA’s current view on interest rates is that the next move is “more likely to be up than down, though it is some way off.”
Australia's RBA cash rate has been at 1.50% since August 2016, and the market doesn’t really expect it to move again for a little while.
What does this mean for travellers?
Sadly, less household income does mean less to spend on holidays. If the RBA does increase interest rates, it could potentially have an upward effect on the AUD as investors may move their assets to Australia in search of a greater return. Experts don’t really expect this to happen for a little while. Regardless, other economic factors will most likely have a bigger impact on the value of the Aussie dollar.
US/China trade war
If you have no idea what is happening between the United States and China, I would recommend catching up - a fair bit has happened. Long story short, Chinese President Xi Jinping and US President Trump are engaged in a trade war where Trump is threatening to add a 25% tariff to $250million worth of Chinese exports into the US.
Why does Australia care? Apart from it taking up a lot of airtime over cat videos on social media, it has a significant effect on the Aussie Dollar.
This week saw some additional market anxiety after the US seeked the arrest the CFO of Huawei (a Chinese telco and also a really fun brand name to say HOOWAWAY) over sanction violations. Another strike against China in the eyes of the US is not good for trade tensions.
The arrest comes on top of concerns about a slowing US economy and lower interest rate hike expectations (remember what I said about interest rate hikes above? Higher interest rates = more foreign investment and upward pressure on the currency).
There is a fair bit happening in global markets in the lead up to Christmas. If you are travelling soon, it is definitely worthwhile keeping an eye on the news to see how this may impact your travel money overseas.
Don’t forget to put Travel Money Oz on your nice list this year! Not only are our consultants experts, but if you add Rate Guard to your transaction in store we will give you the difference should the rate improve within 14 days of purchase*! Wouldn’t that be a nice bonus to put under the Christmas tree?
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