This week has been off to a pretty slow start for foreign currency markets. This is both good and bad news: good because it means nothing major has put downward pressure on the Aussie Dollar, and bad because nothing has given the AUD a huge, bonza-worthy boost. While there have been a few small wins, it is definitely at the expense of the health of the broader global economy.
Despite the tumbleweed rolling through the markets, a few things have been happening.
Germany is having a rough time
On Monday German manufacturing PMI data was released, and it's safe to say it was more underwhelming than a burnt schnitzel. Markets expected it to come in at 44.0pts, increase it decreased to 41.4pts, leading it into its ninth consecutive reading under 50pts.
To add further fuel to the fire, the Eurozone economy is also showing signs of deterioration after their composite PMI also fell short of expectations by coming in at 50.4pts instead of 52.0pts.
This has culminated in the German economy teetering on the brink of recession. The German IFO business survey is released later tonight and is expected to confirm the weakness.
Overall this downbeat news out of Europe has given the AUD an ever so slight boost against the euro. However, Germany is one of Europe's biggest economies, and a recession on their behalf would not have an ideal flow-on effect for the rest of the economy.
Britain awaits the Supreme Court ruling
The British Supreme court is expected to release their verdict on whether Prime Minister Boris Johnson's suspension of Parliament was legal this evening. If it is deemed okay, Parliament will stay shut until October 14 as planned. However, should it be deemed illegal, Parliament may resume earlier, and Johnson will face immense pressure to resign. If Johnson resigns, a new leader, will be put in place charged with delaying Brexit and calling a general election. If I were Boris, I would need a lot more than an English Breakfast tea to calm my nerves right now.
Speaking of elections, the Labour Party has announced a radical (and bloody exciting) plan to reduce to the UK work week to four days!!! While impressive, a Labour-commissioned study only two weeks prior said that such a policy is not "realistic or even desirable". Nothing like an election promise without any basis of truth, hey?
Fingers crossed the law somehow gets passed, and the UK excels under the new working standards, showing the rest of the world (cough* Australia *cough) that is a worthwhile change.
In foreign currency news, the pound saw slight weakness against the AUD off the back of the European data. Apart from that, it will continue to be influenced mainly by Brexit proceedings.
US/China trade talks
Last week China and the USA participated in two days of trade talks with limited success. As a result, the Chinese Vice Premier is expected to visit the US next week to resume negotiations. Should the trade war escalate again, there is, of course, a considerable risk that the AUD will experience downward pressure against the USD.
On a positive note, overnight China purchased ten cargoes (about 600,000 tonnes) of US soybeans.
Beans aside, we are unlikely to hear much about the trade talks for a little while as China turns its focus away from Trump and towards their 70th-anniversary celebrations of the founding of the People’s Republic of China on October 1.
Australia awaits RBA governor economic update
This evening, Reserve Bank of Australia Governor, Philip Lowe, will give an update that will most likely signal an interest rate cut in October. This comes after August's employment report showed a 0.1% increase in the unemployment rate.
Markets have already priced in an October rate cut of 25 basis points at 80%, with another cute also expected in February 2020.
Should Governor Lowe signal slowly towards a rate cut it is not ideal news for the AUD which may see downward pressure as a result. This will depend on what other countries do to their rates, it’s seemingly a race to cut rates everywhere at the moment.
With this in mind, we recommend adding Rate Move Guarantee to your foreign currency purchase in-store. It's free, and if the rate improves within 14 days we will refund you the difference!*
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