Australians held a collective sigh of relief as the election finally drew to a close on Saturday evening, with Scott Morrison and the LNP defying almost every opinion poll nationwide and even the bookies to retain office for another 3-year term. Spare a thought for betting company, Sportsbet, who lost at least $5.2 million over the weekend by paying out early on Bill Shorten and Labor winning the election. Ouch.
It certainly seems like a classic case of the more things change, the more things stay the same for the Australian dollar at the moment. Yesterday, the ASX added $33 billion, or 1.7% total value on the news of a more growth-oriented Liberal majority Government to reach its highest point since 14 December 2007. Despite this, the Australian dollar was kept in relative check by the escalating US/China trade war and the highly anticipated Monetary Policy Meeting of the RBA (Reserve Bank of Australia) today, gaining 1% in early trade but struggling to push higher. Today, one Aussie dollar will buy you:
1.032 New Zealand dollars
With international conditions and domestic data still showing plenty of uncertainty, we recommend adding Rate Guard to your transaction in store for some peace of mind. It’s free, and if the rate improves within 14 days of purchase, we will refund you the difference*.
RBA ADOPTING A WAIT AND SEE APPROACH ON INTEREST RATES
Today, all eyes have been on the RBA for clarification on Australian interest rate pricing and the immediate outlook for AUD/USD. Last week’s slight increase in unemployment rates will do little to ease the RBA’s mind when combined with the recent softness across wage growth and lower than expected inflation data. Since the higher unemployment figures were released, market pricing for a June rate cut is sitting at 76%.
Today the minutes of the Monetary Policy Meeting held by the RBA on 7 May 2019 have been released with the RBA remaining committed to reducing unemployment and returning inflation to their target levels. The RBA acknowledged the failure of GDP growth, inflation and employment to reach their earlier targets, noting that without a change to monetary policy over the next six months, they would likely not improve. This is the RBA’s subtle way of saying if things don’t fall in line with our targets soon, rates will have to drop.
With the RBA making no change to their monetary policy at this time, economists will be keeping a keen eye on upcoming unemployment and inflation data. If unemployment fails to dip below the 5% mark and inflation remains slow as a result, expect the RBA to drop the cash rate sooner rather than later.
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INVITATIONS TO THE BREXIT PARTY
As Brexit talks continue to stall, the GBP continued to fall while Theresa May and Labour leader Jeremy Corbyn failed to come to any notable agreements. May’s inability to secure a popular deal for Brexit has softened investors’ appetite for the Pound and forced trading to move outside recently narrow ranges as markets begin to re-price in the likelihood of an exit from the EU without a deal.
While the UK continues to squabble over exactly what Brexit should look like, the EU is preparing for a key test of their own strength and democracy as they head to elections for the European parliament later this week. Due to the UK being unable to finalise their withdrawal from the EU last month, they are bound by EU obligations to take part in the elections as well. According to polls (take that with a grain of salt) The Brexit Party, led by Nigel Farage is likely to receive the largest vote share in the election on Thursday, despite fierce opposition. Australia may have egg boy and egg girl, but the UK has Milkshake Man, who expressed his dissatisfaction with Farage yesterday by throwing a banana and salted caramel milkshake over him at a campaign rally. The support for the Brexit Party is not boding well for the GBP either, which slipped to a fresh four-month low against the Euro. Weaker results for the GDP could help to offset weaker than expected movements from the AUD, depending on how the market digests the RBA Monetary Policy meeting today.
THE US/CHINA TRADE WAR: AMERICA SAYS IT’S HUAWEI OR THE HIGHWAY
Last week, the Trump Administration upped the ante in the trade war stakes by slapping a ban on US telecommunications firms supplying services to and using foreign hardware from companies posing a security risk.
Despite Huawei, the world’s number 2 seller of smartphones publicly stating that it has a “solid track record in cybersecurity”, Google has already suspended offering some services to Huawei users and other US companies will be obliged to follow suit. According to sources on the ground, Huawei users are already trading in their phones at a rapid rate in the event Google pulls further services, and chipmakers including Intel, Qualcomm, Xilinx and Broadcom have already told their employees they will not supply Huawei until further notice.
This latest development has led to fears that China will keep playing the tit-for-tat game with the US and deliver a new set of their own restrictions to US companies. Ongoing trade war tension has been hard enough on the USD and global stocks; the spreading of uncertainty to tech-based stocks caused a 1.7% drop in Standard & Poor's (S&P) 500 technology sector, with Apple leading the way with a 3.3% drop. Watch this space.
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