19th March 2019
It's been a relatively quiet start to the week in terms of economic data, however, things are expected to fire up a bit more towards the end of the week. Thankfully the AUD has strengthened slightly since last Friday. As it stands, one Aussie dollar will buy you:
0.6909 US dollars
0.5153 Great British pound
0.8901 Canadian dollars
1.0007 New Zealand dollars
If you purchased $2000AUD worth of USD today compared to last Friday you would be getting an extra $7.40USD. That might not sound like much, but it is the equivalent of a hot dog as you explore Central Park. Protect yourself from currency movements, big or small, by adding Rate Guard to your purchase in store. It’s free, and if the rate improves within 14 days of purchase we will refund you the difference*.
So, what’s expected to happen in markets this week?
In America, there are expectations that the Federal Open Market Committee (FOMC) will reduce their Gross Domestic Product (GDP) forecasts and potentially remove a couple of interest rates rises from their forecasts. This could potentially put slight upward pressure on the value of the AUD, as a lack of interest rate rises in another country such as the US discourages investors from moving their capital out of Australia in search of a greater return.
The other thing to keep an eye out for in the States will be the continued reduction in the Fed's balance sheet and the pace, or lack thereof, of this reduction moving forward. Not sure what we refer to when discussing the pace of the balance sheet reduction? We’ve tried to simplify it below.
After the Global Financial Crisis in 2007, the Fed purchased a huge amount of long term assets (we’re talking trillions of dollars) to rapidly increase the value of their balance sheet in hope of putting downward pressure on long term interest rates. This inflated the size of the US balance sheet.
Since then, assets have begun to mature and the Fed has continued to purchase new ones, essentially replacing them, to maintain the size and composition of the balance sheet. This occurred for about three years until the US economy moved more in line with the Fed’s targets. From here, the Fed wanted to start reducing the huge balance sheet by very slowly letting older bonds mature by not reinvesting.
This notion started towards the end of 2017. However, now the US economy is apparently not as fine and dandy as thought (compared with late last year), and so the Fed has started slowing interest rate increases. As a result, there is some talk of slowing (if not stopping) the current runoff from the balance sheet.
As there appears to be increasing economic weakness in most parts of the world including Europe, China, Japan, Australia and New Zealand, we will be hard pressed to see any dramatic moves up in the AUD against the USD.
Furthermore, the ongoing US-China trade talks and developments appear to be delayed further after it was announced that Presidents Trump and Xi won’t be meeting again until April. With this in mind, it sounds like we are still a fair way away from an agreement being reached.
After last weeks string of votes that really didn’t get us any closer to Brexit certainty, the next big Brexit event is this Wednesday 20 March. This comes before the European Council Summit on Thursday and Friday.
Prime Minister Theresa May was originally hoping to have another meaningful vote on her Brexit deal this Wednesday; however, overnight House of Commons Speaker John Bercow ruled that the government cannot ask the house to vote on the same (or substantially the same) Brexit deal as last week. Makes sense really.
Bercow added that, “this ruling should not be regarded as my last word on the subject. It is simply meant to indicate the test that the government must meet in order for me to rule that a third ‘meaningful vote’ can legitimately be held in this parliamentary session”. In other words, don’t waste Parliament, and the UK’s time, by making them vote on something they’ve already said no to. Ain’t nobody got time for that.
Prime Minister May must now seek significant changes to her deal. This may prove difficult as the EU has repeatedly stated that their negotiations on the Withdrawal Agreement have concluded. If May can’t change their minds, particularly when it comes to negotiations on the Irish backstop (a key point of contention amongst British MPs), chances of her plan being approved are pretty minimal.
Currently, the media is reporting that May will ask the EU for a nine-month extension. That means another nine months of uncertainty around what Brexit actually means for the UK and its rippling effects on the global economy.
On top of this, Britain is also faced with the following possibilities:
- A leadership challenge
- A general election
- A second referendum on Brexit
- Revoking article 50 and stopping Brexit all together.
MPs are relying on the fact that they will have more time to get this sorted, however, the extension to the Brexit deadline must still be unanimously agreed upon by all 27 countries of the European Union.
Should the nine-month extension not be approved, the UK will have a week to pull a rabbit out of a hat as they leave the EU on March 29, 2019.
Reminiscent of the Neverending Story, it appears we will be talking about Brexit for quite a while. If you’re heading to the UK soon, it’s worth checking out how Brexit may affect your holiday. Don’t forget to sign up for Rate Alerts as well, so we can let you know when the AUD reaches your preferred rate against the GBP amidst all of this uncertainty.
This morning NZ Consumer Confidence for the first quarter was released. It showed a decline in confidence from 109.1 to 103.8.
Today will also see the twice-monthly Global Dairy Trade auction. Dairy is one of New Zealand’s biggest exports. Markets expect whole milk powder (WMP) prices to rise by about 2%, adding to the 20% lift seen already this year.
Such a strong rise in prices will provide support to New Zealand’s terms of trade and the Kiwi Dollar.
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All rates are quoted from the Travel Money Oz website and are valid as of 19 March 2019
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