The Aussie dollar relaxed over the Queen’s Birthday long weekend, barely moving a muscle to continue with the relative stability it has shown in recent weeks, but this week shapes as an important one for domestic economic data. The AUD struggled to capitalise on USD and GBP weaknesses over the weekend and traders are wary of a number of results due to be released this week that could hold the key to the short term performance of the AUD. This morning, 1 AUD will buy you:
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Upcoming domestic data holds the key to short term AUD performance
After the three-day weekend for the ASX it has a bit of catching up to do on the weekend’s worldwide events before it begins to digest domestic conditions and a host of critical data due to be released this week.
The NAB business confidence index is due to be released today, with many keen eyes fixed to see if confidence levels can follow the trend of upticks following Federal elections and rise above the flat 0 it hit in April. Thursday's release of the May employment data is also a huge focus for domestic markets as economists look for signs that the post-election unemployment level is heading back below the 5% mark. With the Reserve Bank of Australia last week cutting the cash rate to a new record low of 1.25% and hinting at another move if the jobs market does not improve soon, a failure to lower unemployment could result in a dip in the AUD.
Two consumer sentiment surveys; the Westpac/Melbourne Institute monthly reading and the ANZ-Roy Morgan weekly measure are also due to be released on Wednesday and will provide a snapshot of consumer confidence since the Coalition victory in the Federal election.
Speaking of rate cuts, financial markets are betting the RBA will cut interest rates again in August and quite possibly in November, likely undermining the ability of the AUD to climb higher against the USD. Thankfully for the AUD, escalation of the US/China Trade War coupled with lower than expected international manufacturing and trade data on top of expectations of RBA and Federal Reserve rate cuts should stop the AUD from dipping considerably.
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UK playing the world’s biggest game of Deal or No Deal
Now that Theresa May has officially stepped down as leader of the Conservative Party, the race to find her replacement is really starting to heat up as 10 contenders, many of whom support a No-Deal Brexit solution, take their marks. The first round of internal party voting begins on Thursday as they look to whittle the field down to two candidates, who will then be put to a vote of party members. Unfortunately for the GBP, this uncertainty only serves to create more instability in the currency and is unlikely to be resolved any time soon.
There are also fears that the growing uncertainty surrounding Brexit and the possibility of a No-Deal solution could drive the UK economy backwards this quarter with official data published on Monday showing the economy shrunk by 0.4% in April. This result was worse than expected and follows a March contraction of 0.1% as businesses and economists beg for some clarity on exactly what Brexit will look like.
The economic pain and uncertainty doesn’t appear to be going anywhere any time soon for the UK and the GBP continues to slip against most major currencies, the AUD included. If the rhetoric of Theresa May’s replacements continues to allow for a No-Deal solution, the Aussie dollar could see more gains over the coming months despite rate cuts at home.
Trump doubles down on China tariffs, presses pause on Mexico Trade War
What a rollercoaster ride these Trade Wars have become. Just days after announcing that Mexico would be hit with a host of trade tariffs in retaliation to illegal immigration, the Trump administration has apparently brokered a deal with the Mexican Government to avoid them. In a statement released yesterday, President Donald Trump said that the proposed tariffs would be suspended after Mexico agreed to make concessions on immigration and take steps to strengthen their border.
The brokering of a deal seems to have increased Trump’s love affair with trade tariffs, “tariffs are a beautiful thing... as soon as I put tariffs on the table, it was done, it took two days” he boasted in an interview overnight. Matching Trump’s love of trade tariffs is Wall Street’s scepticism of them. US stocks rose just over 1% on the back of the trade tariff suspension, happy to put the spectre of another Trade War on the back burner for now at least. But, if President Trump has proved anything during his tenure, it’s that he is as unpredictable as Melbourne weather when it comes to his next move.
On the China front, Trump has threatened to impose new tariffs on around $300 billion worth of imports if Chinese leader, Xi Jinping chose not to meet with him in Japan at the G10 summit at the end of this month.
All of this yo-yoing has only increased volatility and uncertainty in the US dollar, with speculation beginning to border on certainty that the Federal Reserve will cut interest rates in the next few months. This uncertainty in the USD is good news for Aussies travelling to the States as it continues to aid the AUD’s performance, helping it remain relatively stable despite growing economic concern domestically and the growing likelihood of further interest rate cuts.
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