Today I can say happy Friday with optimism because it is, indeed, a happy Friday. Why? Well, prospective foreign currency buyers and lovers, today we have news that the 20-month long trade war between the US and China might finally be on the way to ending. This news was incredibly well received by markets, improving risk sentiment and supporting ‘risky investments' like the AUD. With this in mind, one Aussie dollar will buy you:
The AUD is stronger than all except the SGD compared to this time last week, which is brilliant news for those of us planning a Christmas getaway that requires travel money. Ensure you don't miss out on any further rate improvements, and protect yourself from rate fluctuations, with Rate Move Guarantee. It's free, and if the rate improves within 14 days of purchase we will refund you the difference!* Yeehaw.
So, what's the goss on the trade war?
Long story short, the US and China have been playing tit-for-tat for the last 20 months by increasing tariffs on each other's exports. This has severely impacted not only their economies but the economies and currency value of their trading partners. Australia is one of the said partners, and the ebbs and flows of the trade war have contributed to some pretty gnarly lows on the Aussie dollars behalf.
Officials from the US and China have recently been negotiating a stage one deal. There wasn't a lot of optimism surrounding the negotiations, as the same thing has happened in the past to no avail. Today, however, we have finally be greeted with a glimmer of hope.
Yesterday, a Chinese commerce ministry spokesperson said that negotiators on both sides have agreed to remove tariffs in phases. First up, the fact that Beijing has said this is promising, as Trump has previously been the first to announce things that weren't corroborated by China.
Although markets are currently awaiting the US to confirm what Beijing has said, the prospect of a gradual decrease of tariffs from both signs has lifted market spirits and spurred risk appetite. If / when the US does confirm, there is potential for the Aussie dollar to benefit even more.
Any improvement in the trade war is good for Australia and the Aussie dollar. China is our biggest trade partner, so the adverse effects of the trade war on China's economy were spilling through to Australia's economy. Fingers crossed the US confirms these reports soon, and more efforts are made towards a workable trade agreement and truce between the world’s two biggest economies.
In other news, the Reserve Bank of Australia's quarterly Statement on Monetary Policy was released earlier today. This statement essentially determines their stance on Monetary Policy (interest rates) and assesses future risks to their long term goals around inflation and economic growth.
Today's report was slightly dovish, or negative, around the future of the Aussie economy. This was mostly in line with market expectations, especially considering recent economic performance.
The report essentially said the following:
The RBA is prepared to decrease interest rates further; however, the board recognises that low-interest rates bring "other policy options" to the table and could also convey an 'overly negative' view of the economy.
Global markets appear to have passed a "trough of pessimism", and the Australian economy is rising slowly from a softer patch of growth.
Wage growth is low and is not expected to pick up, despite further wage growth being needed to meet the RBA's inflation target of 2-3%.
While this has put a slight dampener on the AUD's gains, markets we're not overly surprised by the findings of the report, so it didn't completely outshine the Trade War progress.
We can only hope that good news continues to filter out on the trade war front, boosting the AUD and giving Aussie travellers more travel money in their back pocket.
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