The first third of February has seen the Aussie dollar frantically treading water as it faced pressure from global markets. Thankfully, we have seen a slight reprieve in the last week or so. As it stands today, one AUD will buy you:
It’s a bit of a slow start to the week due to the US markets being closed for the Presidents’ Day holiday and no top tier economic data (which generally has the biggest effect on currency markets) in the calendar.
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Despite the US public holiday and lack of economic data releases, there are still things happening in the global economy that have an influence on the value of the Aussie dollar.
The first one is (you guessed it) Brexit
. This ongoing saga has quickly become my new alternative to counting sheep when struggling to sleep.
The biggest Brexit news since we last spoke
, was the departure of seven members of the UK’s Labour party, who have left to assemble their own political grouping called the “Independent Group”. These seven members are said to be extremely dissatisfied with Labour’s leadership with regard to Brexit, particularly the failure to call for a second referendum.
With this in mind, there is an increasing likelihood of a delay to Brexit (extension of Article 50) and a second referendum.
In other news from the UK, Honda also announced plans to close its UK factory with Japan-based manufacturing to take over for the European market. While Honda made it clear that this decision was based on global trends and not Brexit, it’s probably fair to say Brexit was at least part of the reason they drove out of the UK market.
With Brexit just over one month away, we recommend adding Rate Guard
to any of your GBP purchases in store. The next few weeks could see some movements in its value as a result of Brexit. If the rate improves within 14 days of your purchase, we will refund you the difference*.
It was a pretty quiet couple of days in the US, with the major headline being the fact that President Trump has received advice that imports of vehicles may represent a threat to national security; bad news for Germany.
As you can imagine, German Chancellor Angela Merkel is not overly impressed with this stance from the US as it could lead to new tariffs against her country’s large auto industry. This could put downward pressure on the value of the euro against the USD.
President Trump has previously used “national security” as a reason to place tariffs on other goods and countries; most notably, Section 232 tariffs placed steel and aluminium last year.
This could escalate with the EU reportedly ready to roll out retaliatory tariffs on around €20 billion of US exports. Let’s just pray another trade war, similar to that between the US and China, doesn’t erupt.
This morning, the Reserve Bank of Australia (RBA) released the minutes of their February policy meeting. During the meeting, they discussed the global economy appearing to moderate in the second half of 2018. For those playing at home, this is not good news.
The RBA also noted that trade tensions remain a significant risk to the global growth outlook. This is particularly pertinent to Aussies watching the China/US trade war play out. Whatever agreement the two countries come to will see effects reverberate throughout the world, especially Australia and the value of the AUD.
The release of this statement officially aligns the RBA’s stance with that of RBA Governor Philip Lowe’s speech given on 5th February where he stated that, "Looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down".
Today’s release links in nicely with this new rhetoric by stating, “members noted that there were significant uncertainties around the forecasts, with scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate. Moreover, the probabilities around these scenarios were now more evenly balanced than they had been over the preceding year, when an eventual increase in the cash rate had appeared more likely.”
Long story short, prior to this statement being released, markets were expecting an eventual increase in Aussie interest rates. This would have been a positive move for the value of the AUD, as it allowed it to be a more viable investment option. Now, with a seemingly equal chance of a rate cut, there is a less positive outlook on the value of the Aussie dollar.
Commodities: the wind beneath the AUD’s wings
It is worth mentioning that commodity prices, particularly those of iron ore, have been a big positive for the AUD at a time when it was desperately required.
Overnight the Brazilian government banned new upstream mining dams and ordered the decommissioning of all current dams by 2021. The new rules are the result of an upstream dam that collapsed in January 2019. The aftermath of this tragedy saw commodity prices skyrocket which, in turn, gave the AUD a boost.
This change in policy from Brazil will likely put more upward pressure on the price of iron ore which is already up nearly 20% since late January.
Whilst this certainly isn’t negative for the AUD, it is likely to be priced in (expected) by markets, so there may not be a huge increase in the value of our currency.
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All rates are quoted from the Travel Money Oz website, and are valid as of 19 February 2019