It might already be January 10, but this is the first AUD update of 2020 so Happy New Year! While Australia battles unprecedented fires, the wider world and financial markets have not stopped trading. The AUD steadily saw gains against the USD in the last few days of 2019, before seeing somewhat significant drops as we started the new year. With this in mind, one Aussie dollar will currently get you:
What is impacting the Aussie dollar this week?
In the USA
It's been a big few weeks for the USA. Trump's impeachment proceedings began, and tensions rose after the US attack on Iranian General Qassem Soleimani and retaliation attacks from Iran on US forces in Iraq.
Despite the magnitude of these events as global news, they have done very little to depreciate the value of the USD. It seems markets are used to the happenings of the Middle East and aren't as shaken as we otherwise would have thought.
While these events haven't budged the value of the USD, they have at least slightly dampened market risk appetite. Today's development of potential de-escalation from Trump will help this further.
Major events aside, tonight will see the release of the November non-farms payroll data. Markets expect 160,000 increase in payrolls; their hopes bolstered by gains in ADP employment and lower than expected US jobless claims data. Should the non-farm payroll data be as strong as expected, it is likely to provide further support to the value of the USD and delay an interest rate cut by the US Federal Open Market Committee for now. Markets still expect at least two interest rate cuts in 2020.
Long story short: the USD is doing pretty well and is expected to continue this trend, at least for the time being.
In the UK
Harry and Meaghan have stepped down from Royal duties. This caused a huge fuss in the media, but financial markets don't care at all. What they do care about, however, is Brexit which saw a significant step forward this week when MP's supported Boris Johnson's legislation 330 votes to 231. After what seemed like countless attempts in 2019 to reach this point, the GBP was understandably boosted as a result of the bill being passed.
Shout out to the December election for giving his party a majority to get something done. Who knows if it was the right decision, but at least something is happening and we are slowly progressing out of the limbo we were stuck in for all of 2019.
The legislation now heads to the House of Lords next week where it will be scrutinised further. It is expected to pass through this and further stages pretty swiftly and receive Royal Assent (aka the Queens A-OK) by January 31. The current Brexit deadline is March 31, though swift proceedings (and Boris' best efforts) mean an end of January departure is likely.
While this is positive news for the current value of the pound, markets expect GBP appreciation to be limited due to uncertainty around how the UK-EU trade negotiations will unfold over 2020.
At this stage, the bushfires have had little impact on the value of the Aussie dollar. However, their long term strain on the nation's resources as we rebuild could see an effect on the strength of the Australian economy and, as a result, the AUD.
This is somewhat concerning, especially considering our economy's lacklustre performance of late. This week job vacancy figures were released, and they showed that for every job vacancy there are three unemployed Aussies - a bad sign for the already struggling Australian labour market and unemployment rate.
What does this mean? Well, there are more than 700,000 unemployed Aussies seeking jobs that won't get them, even if they are qualified. This is even with a 1.6% increase in job vacancies over the last quarter.
Increasing unemployment is feeding our slowing domestic economy, and the Reserve Bank of Australia believes wages will remain stagnant until unemployment falls below 4.5%. With it currently sitting at 5.2%, markets are understandably concerned about our economy and expect another cut to interest rates in February. This will be a hard pill to swallow for the Aussie dollar; however, it may be necessary to get our economy back on track.
All things considered, if you're planning an overseas adventure in 2020, it is worth keeping an eye on the AUD and purchasing when it is doing well against your preferred currency. Sign up for rate alerts, and don't forget to add Rate Move Guarantee to your purchase in-store. It's free, and if the rate improves within 14 days we will refund you the difference*!
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