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AUD news: Groundhog day for forex markets: trade talks, US government shutdown and Brexit continue

15th February 2019
If you haven’t seen the movie Groundhog Day, we highly recommend it. It’s about a TV weatherman that gets caught in a time loop and has to relive the same day over and over again. 
 
In the same spirit, let’s have a look at events that affected the value of the Aussie dollar this week (spoiler alert: they are similar to last week!).
 
As it stands, one Aussie dollar will buy you:
 
0.6908 US dollars
75.0936 Japanese yen
0.6029 euros
 
Now, onto key global events affecting currency markets. Let’s start with the big three - the US/China trade talks, a possible US Government re-shutdown due to Mexico/US wall funding, and the gift that keeps on giving - Brexit

 

US/China trade talks

Trade talks seemed to be progressing nicely, as US representatives arrived early to their negotiations to ensure a deal sorted. There was even talk of letting the March 1 tariff increase deadline slide due to the amount of meaningful progress being made. 
 
It was all sunshine, lollipops and rainbows… until it wasn’t. Today, Bloomberg has reported that US and Chinese officials have said that the two countries have failed to bridge the gap and that they both have a lot of work to do. 
 
Apparently, there is still talk of an extension to the March 1 deadline, but who really knows? Should this deadline remain, China is facing the prospect of doubled tariffs on over $200billion worth of exports into the United States. This is not great for the Chinese economy and in turn, it will not be good news for the Australian economy and AUD. 
 
If you are travelling soon and are worried about fluctuating exchange rates, we recommend adding Rate Guard to your transaction in store. It’s free, and if the exchange rate improves within 14 days of purchase we will refund you the difference*. 

 

US Government shutdown

It appears as though all parties want to avoid another shutdown (yay). The initial shutdown had a profoundly negative effect on President Trump’s approval rating (shocker, who would've thought a 35-day shutdown could have such an impact). Even so, Trump is pushing ahead with his funding requests. 
 
Where does this leave the US?
Currently, both parties have agreed on US$1.375b worth of funding for the wall. This amount would fund 55 new miles (about 88 kms) of border fencing, however is significantly short of the US$5.7b that Trump was initially seeking. Trump has stated that he might declare a national emergency to obtain the remaining funds. Should he proceed with this course of action, the Democrats might challenge the national emergency in court. 

 

Brexit

In ongoing Brexit news, Britain's parliament has voted (303 to 258)  against a motion endorsing Prime Minister Theresa May’s “Plan B”  approach to resolving the Brexit deadlock. 
 
It looks as though Parliament will take control of the process from 27th February, as the latest vote has effectively stripped May of the political mandate to demand the changes to the withdrawal agreement. 
 
With just over a month until Brexit d-day, it’s imperative that British Parliament gets a move on with negotiations.

 

To finish: a sprinkle of economic data

Both domestic and international economic data, especially changes in interest rates, can have a major effect on currency movements. 

 

USA economic data

US retail spending declined 1.2% month on month in December. Analysts had expected a 0.15 gain so this is a massive miss. 
 
Markets attribute this decline to a few things, including huge falls in the stock market in December (the stock market was down 16% at one stage) and the uncertainty around the economic backdrop. The  US government shutdown could have also played a role. 
 
This could potentially put a hold on any increases in US interest rate rises. A hold on US interest rates is good for Aussie travellers, as it means less downward pressure on the value of the AUD. 

 

Australian economic data

Westpac consumer sentiment was released during the week and showed a slight improvement after a shaky start to the year where it dipped into negative / pessimistic territory for the first time since 2017.
 
Thankfully, we are back in “cautiously optimistic” territory now. It will be interesting to see where we go from here. 
 
 
Definitions for those of us playing from home
 
Consumer Sentiment
A statistical measurement of the economies health. This is determined by consumer opinion, and takes into account their opinions towards the financial health of the economy and their own personal circumstances. 
 
This blog is provided for information only and does not take into consideration your objectives, financial situation or needs.  You should consider whether the information and suggestions contained in any blog entry are appropriate for you, having regard to your own objectives, financial situation and needs.  While we take reasonable care in providing the blog, we give no warranties or representations that it is complete or accurate, or is appropriate for you.  We are not liable for any loss caused, whether due to negligence or otherwise, arising from use of, or reliance on, the information and/or suggestions contained in this blog.
All rates are quoted from the Travel Money Oz website, and are valid as of 15 February 2019
*Terms and conditions apply to Rate Guard. See https://www.travelmoneyoz.com/rate-guard for more information.