10th January 2019
Overnight the Aussie dollar increased in value against the USD, going from 0.6941 to 0.6980. A difference of about $8 (or a few coffees) if you exchanged $2000 AUD.
Bummed out that you missed the bonus caffeine hit by purchasing yesterday? Next time add Rate Guard to your purchase in store, and if the rate improves within 14 days of purchase we will refund you the difference*.
US/China trade war
Our Aussie dollar has been well supported this week off the back of the recommencement, and apparent progress, of trade talks between the US and China. Now in their third day of discussions, whilst there is no formal agreement, both sides have made progress on a number of issues, including China’s purchase of US goods and opening Chinese markets further to American capital.
We are yet to see a resolution on other aspects of the agreement, such as Chinese subsidies for domestic firms and the protection of intellectual property.
It’s reported that President Trump is looking to make a deal with China sooner rather than later, as the current lack of agreement has contributed to falling stock markets in the last few months.
Trump and the Fed
The past few months have also seen Trump fighting with the Federal Open Market Committee (FOMC), urging them to slow or even stop the increase of US interest rates. Whilst Trump didn’t win the December battle (the FOMC hiked rates by 0.25%), the subsequent fall in share market prices, coupled with slightly weaker US economic data and the Chinese trade war may see the Fed pause for a little while.
The FOMC released the minutes from their December meeting yesterday. Despite raising interest rates, the language used in the minutes could be considered dovish (definition below). The minutes didn’t provide much clarity on the timing of any future interest rate moves and the word ‘patient’ was used, making it clear that the FOMC? was taking note of what the market was telling them.
For the time being, the Fed will most likely play the waiting game, monitoring business and consumer confidence as the market continues to digest the December rate hike.
The expected hold on US interest rates, progress of trade talks and solid commodity prices have seen market sentiment shift to a more ‘risk-on’ type of environment, which often sees upward pressure on the AUD.
This is good news for Aussie travellers, and we recommend keeping an eye on the news to see how long this positive sentiment sticks around.
Nothing major has really happened with Brexit over the past few days that has seen an effect on Aussie travellers and their travel money.
British MPs will vote on Prime Minister Theresa May’s Brexit deal next Tuesday (Wednesday Australia time). If the deal isn’t passed (which people are pegging as a high probability), May will have to present an alternative to her deal within three days. Sheesh.
Definitions for those of us playing at home:
Dovish wording (Dovish v Hawish market)
These are terms that refer to the general sentiment of a country’s central bank when talking about monetary policy.
The bank will take a hawkish stance when they want to prevent excessive inflation. This is often done by increasing interest rates. Increasing interest rates generally puts upward pressure on the value of that country’s currency, as investors can now get a greater return.
The bank will take a dovish stance when the economy is not growing and the government is seeking to guard against deflation. You guessed it; this could lead to decreasing interest rates which would put downward pressure on the value of the currency. Just keep in mind that this value is still relative to other countries, so a dovish stance is not always bad news for the value of the currency.
An easy way to remember: hawks fly higher than doves. So when markets talk about things being hawkish, it generally means things are going up. You normally see doves on the ground, so if there is talk of things being ‘dovish’, things may be going down.
Risk Sentiment (Risk-averse mood)
This refers to changes in investment activity based on the level of risk tolerance in the market. If the risk is perceived to be low (risk-on) the theory states that investors are more willing to engage in higher-risk investments. Likewise, when the risk is perceived to be high (risk-off), investors will seek lower-risk investments.
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All rates are quoted from the Travel Money Oz website, and are valid as of 10 January 2019.
*Terms and conditions apply to Rate Guard. See https://www.travelmoneyoz.com/rate-guard for more information.