A week is a long time in economics and markets. If recent market commentary was to be believed, Australia was headed for a recession; now it looks like everything is completely fine and we had nothing to worry about! As is usually the case when we have such wild swings in sentiment, the actual state of affairs is probably somewhere in the middle. With this in mind, today one Aussie dollar will buy you:
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It seems Australians are starting to see some bargains in the housing market after a year of falling prices. The latest Westpac-MI Consumer Sentiment Index for April showed sentiment towards both prices and purchasing rise quite strongly.
“Sentiment around housing improved in April,” said Bill Evans, Chief Economist at Westpac Bank. “The ‘time to buy a dwelling’ index rose a further 2.4% to 119.4 in April, a four-year high. The index has now risen 33% from its mid-2017 low and is back around its long-run average of 120.”
Readings over 100 indicate that optimists outweigh pessimists, meaning simply more Australians believe now is a good time to buy a house. It’s important to note that more people expect prices to fall than rise, but sentiment in the housing market appears to have become a lot more balanced.
It’s only one month of data and worth keeping an eye on for sure, but it could potentially provide some confidence that the economy is needing to try and lift from the low growth rates we’ve been seeing.
If this data does continue to improve, it could potentially spill over into the wider economy leading to better retail sales as well as better employment data (which is already pretty good but in danger of turning downward). Better employment data would adjust the market's views on the next move in interest rates (which is down at the moment). Ultimately, this could lead to an increase in the value of the Australian dollar which is always great news for Aussie travellers.
On Wednesday the Reserve Bank of Australia (RBA) signalled that the outlook was still uncertain when it came to interest rates, but didn’t make it apparent that they had a bias towards decreasing interest rates.
There was some stronger than expected data coming out of the United States this week, with the US Producer Price Index coming in at 0.6% compared to the 0.3% market estimate. New US jobless claims also fell to 50-year lows.
Markets are expecting a US interest rate cut of 15 basis points by December 2019, and 45 basis points by December 2020. The patient and steady outlook provided by the Federal Reserve Bank in the last few months will probably need to change in order for the value of the US dollar to move significantly either way.
In some ways, both the RBA and the US Federal Reserve Bank are exhibiting the same “wait and see” type of approach to similar issues; seemingly strong employment data but slowing growth.
If USD interest rates are decreased, it could lead to upward pressure on the value of the AUD, which is good news for Aussie travellers.
The other significant news released during the week was that the International Monetary Fund (IMF) downgraded its 2019 global Gross Domestic Product forecast to 3.3% from 3.5%.
The IMF reiterated that global risks to the downside remain and that the world economy is? at a delicate juncture. 2019 growth outlooks were revised lower in Australia, the US, the EU and the UK.
However, in good news for the Aussie dollar, China’s outlook was revised slightly higher to 6.3% from 6.2%. The IMF sees Australian economic growth slowing to just 2.1% this year which is below the level required to maintain current employment levels; these levels are probably the biggest factor the RBA will look at when assessing what to do with interest rates.
Brexit has been delayed… again
After being delayed from the 29th of March to the 12th of April (today), this week the European Union granted the UK a further extension for Brexit until the 31st of October.
This extension was provided in the hope that the UK parliament can somehow resolve their current political deadlock to reach a consensus on how to leave the EU. Many argue that the UK has already had over two years; what is another few months going to do? Either way, it will prove for a spooky Halloween surprise if they manage to get everything sorted in time.
Regardless, the extension has stopped the UK crashing out of the EU with a no deal, which has allowed global markets a sigh of relief. Whilst a no deal would potentially push the pound down in value against many currencies (including the AUD) and provide a welcome travel money bonus for Aussie travellers to the UK, the long term effects on the global economy would be far less favourable.
Looking ahead, the events of the next five months are likely to be much of the same as what are now used to; arguing MPs, meetings between political parties, calls for another referendum as well as a change of leadership. If the UK doesn’t reach an agreement soon, it is also highly likely they will need to take part in the EU elections, which is a pretty touchy subject for many Brits who thought they would have been rid of the EU by now.
Despite the new extension, we still have no real clarity as to what Brexit will mean for the UK. If you are planning on travelling there soon, it is definitely worth wising up on how Brexit may affect your trip. Don’t forget to add Rate Guard to your purchase in store as well. If the exchange rate improves within 14 days of purchase, we will refund you the difference*!
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