After a disappointing end to last week, this week brought renewed hope and upward pressure to the value of the Aussie dollar, increasing its value against all major currency crosses since this time last week. With this in mind, one Aussie dollar will buy you:
0.6659 US dollars
72.2911 Japanese yen
0.5011 Great British pound
0.8501 Canadian dollars
0.9827 New Zealand dollars
0.8805 Singapore dollars
What has impacted the Aussie Dollar this week?
US-China Trade War
Finally, after a year of back and forth, the US and China have agreed on a phase one, interim trade deal. Yay!
On Wednesday, Trump’s administration released a 94-page document that outlines the terms of the agreement. We won’t bore you with all 94 pages worth of detail. Instead, the contract can be summarised with the following:
China has agreed to purchase an extra US$200 billion worth of US products and services over the next two years.
China will be more transparent about government interventions that affect the strength of the Chinese Yuan. They are kinda already expected to do this by the International Monetary Fund, so hopefully, this agreement really makes them follow through.
Intellectual property protections have been strengthened, particularly in pharmaceuticals and technology.
The proof of a deal has improved global market sentiment, which is always good news for the Aussie dollar that thrives in risk-on markets. However, the amount to which the AUD can flourish is dampened by the growing impact of the bushfires on Australia’s economy.
With phase one of the deal now signed, negotiators will look to begin phase two. At this stage, markets feel phase two will be even more complicated than phase one, so we may as well settle in for another year of negotiations.
US domestic data
Overnight the USD outperformed off the back of robust domestic data. The Federal Open Market Committee (Fed) business outlook survey rose to 17.0 in January, up from 2.4 in December. Further to this, December retail sales rose 0.3% MoM and jobless claims for week end January 11 fell to 204k vs 214k the week before.
All of this data is good news for the American economy and, unfortunately, put a cap on the Aussie dollar’s growth.
This data, coupled with the trade agreement, has put foreign exchange volatility at a historical low. It seems geopolitical concerns have led to some zombie-like trading, especially because politics are dominating headlines but aren’t creating major fx trends.
There hasn’t been much movement as a result of Brexit this week, which is still expected to take place by the end of January.
Headlines haven’t been great for Boris Johnson though, as the EU Commissioner for trade has said that it is simply not possible for the EU and UK to reach a comprehensive trade deal by the end of 2020. This comes after Johnson spruced it was “epically likely”.
In other interesting news, it seems Brexit has cost almost the same as what the UK has paid to the EU over the past 47 years. The UK’s total contribution to the EU is around 215 billion pounds when adjusted for inflation. Markets expect that by the close of 2020 Brexit procedures would have cost the UK 200 billion pounds. If that figure doesn’t sting enough, the extra 200 billion pounds is the equivalent of 3% growth in the British economy.
Long story short - the UK is 200 billion pounds down, and their economy is 3% weaker than it otherwise would have been if the Brexit referendum didn’t occur.
On the domestic front, markets are currently pricing a February interest rate cut at just over 50%. It seems the economy is slowly coming to terms with the effect of the bushfires, and we have a long road to recovery.
As we close out the week, the Aussie dollar will take some guidance from Chinese Q4 GDP data released later today. Markets expect GDP growth to remain at 6.0% year on year in Q4. If this figure comes in under expectations, it could spell bad news for the value of our AUD.
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