The Australian dollar is slightly weaker today after last week’s late rally following the RBA’s decision to lower interest rates for the second month in a row. The AUD is trading lower against the USD, GBP, EUR, CAD and SGD but has made slight gains against the JPY and NZD.
The AUD has already been on a bit of a seesaw over the last 24 hours on the back of strong data in the States helping the USD claw back from the two-month high the AUD hit last Thursday and mixed consumer confidence data on the domestic front.
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The Aussie dollar has been kept in check this week on the back of mixed results domestically and some signs the domestic economy is still struggling to meet the targets set by the RBA.
The AUD/USD copped a bit of a beating on Friday as US employment data came in better than expected, turning sentiment of a Federal Reserve rate cut slightly more positive. While the market still expects a cut to interest rates, it is appearing a .25 point cut is becoming more likely than the previously expected 0.50 cut.
Domestically, markets are crossing their fingers our own job data could be on the mend with the ANZ Job Advertisements index rising 4.6% for June after dropping to a multi-year low of -8.2% in May. The number of jobs advertised is a useful tool for economists to look at predicting unemployment and employment growth by the number of new jobs on the market.
Unfortunately for the AUD, the latest ANZ-Roy Morgan Australian Consumer Confidence index survey shows consumers’ perception of the economy fell 1.1% compared to last weekend and the outlook for the next 12 months slid 3.7%. This same scenario happened after June’s rate cut and could be a sign that the RBA’s interest rate cuts are making people more pessimistic about the economic future.
Consumer sentiment is big for the value of any currency, and a higher than expected consumer confidence result is typically a positive sign for the AUD, while a lower than expected result is usually a negative omen for the AUD.
On the domestic front, markets will be watching the release of the NAB Business Confidence index and home loans for May this week very closely. Given the RBA and many economists have expressed an interest in the Australian housing market and the impact that price falls are having on household confidence, consumer spending and economic growth, the AUD could be at risk of weakening if the results for either come in lower than anticipated.
AUD traders and savvy travellers will also be awaiting the release of Chinese trade data for June on Friday, where it’s likely the Chinese import/export results will show a decline due to the ongoing Trade War with the US. China is Australia's largest trade partner, and our economy and currency is linked to the fortunes of the Chinese economy and trading environment.
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The British pound sank to nearly six-month lows compared to the AUD and USD late last week after the release of some less than impressive economic data and growing expectations the Bank of England will lower the official cash rate when it meets later this month.
The main driver of the pound over the past week and for the foreseeable future is likely to be the political uncertainty of an ongoing Brexit and a couple of key data points.
The main economic driver is the release of the GDP data for May this week, which is expected to show a slight rise of 0.3% after April’s negative growth rate. UK economic growth is a key driver of the GBP as it influences capital flow through the economy, and a poor GDP result could hit the pound with a low blow it didn’t need.
The leadership race for the Conservative Party continues to move on slowly and comes to a head on July 22nd when a new leader will be chosen. At this stage, it’s looking like a Boris Johnson victory which is adding to the uncertainty surrounding the possibility of a no-deal Brexit, but his opponent, Jeremy Hunt hasn’t ruled out the option either.
In a recent survey of leading businesses in the UK, 83% of senior management responded that Brexit, regardless of whether it is no-deal or not, would be detrimental to the UK economy. As the 31st of October draws nearer, markets are still coming to terms with how to price in both options.
With few events on the economic calendar today, the performance of the GBP is in the hands of the politicians and politicking for the short term.
As the positivity and hype of Donald Trump and Xi Jinping’s meeting at the G20 last week dies down, markets are itching to see some evidence of inroads being made in trade negotiations. With tariffs currently being charged on hundreds of billions of dollars worth of goods and no real headway made in months, business confidence continues to decline, and manufacturing growth remains on a knife’s edge. Not good news for trade and manufacturing-based economies.
In the midst of a lack of US/China movement, markets have turned their attention to the Federal Reserve Chairman, Jerome Powell's two-day Congressional testimony this week which is expected to affect the short-term sentiment of the USD and maybe give an insight or 2 into the Fed’s longer-term thinking.
One man who wears his sentiment on his sleeve is Donald Trump, who continued to exert pressure on the US Federal Reserve to cut interest rates in line with International Central Banks. According to Trump, if the Fed “knew what it was doing” it would be cutting interest rates instead of suppressing gains in the stock market (adding that the stock market would be “5,000 to 10,000 points higher”) and failing to compete with Europe I bet I know what he really wants to say – “You’re FIRED!”
With US inflation data also out later this week, it could be a topsy turvy week for the USD.
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