Never was there a better analogy for the China/ US trade war than Katy Perry’s “Hot N Cold”. Over the weekend, a negative tone put global markets into a slump. Then, as if flicking a switch, yesterday the mood improved and things were better. Renewed hope in the trade war allowed for a ‘risk-on’ sentiment in the markets, bolstering the value of the AUD against several key currencies. With this in mind, one Aussie dollar will buy you:
On Saturday, the Reserve Bank of Australia’s Governor Philip Lowe said he didn’t believe cutting interest rates would help our economy. He went on to elaborate that political uncertainty is having a substantial effect on markets, and cutting interest rates will do little to encourage investors amidst other forces.
Further to this, Lowe commented on the fact that, since central banks around the world are also lowering their interest rates, the ‘transmission mechanism’ will have less of an effect. What he means here is that when a country reduces interest rates, it puts downward pressure on the value of their currency as investors seek a higher return elsewhere. However, if all major economies are lowering interest rates, then this will not be the case.
Whether he is correct in his assumptions is another thing, and it will be interesting to see what the RBA does over the next few months.
Regardless of his comments, the Commonwealth Bank of Australia has revised their year-end forecast for the AUD/USD to 0.6700 after taking into account the strong USD, slowing global growth and market expectations of another two interest rate cuts. Keep in mind this is market rate and isn’t available to travellers exchanging their foreign currency.
So, what does this mean for travellers? If you’re travelling in the next few months, it’s essential to keep an eye on the value of the AUD. Maximise your purchase when the AUD is at a high to ensure your money goes further overseas. Don’t forget to add Rate Guard to your purchase in-store as well. It’s free, and if the rate improves within 14 days of purchase, we will refund you the difference.
US/China Trade War yoyoing the economy
As mentioned above, it’s only Tuesday, and the trade war has already caused a commotion in foreign exchange markets.
Over the weekend, President Trump tweeted that he would further increase tariffs on Chinese goods. This tweet was not good for Asian markets with Japan, China and Australia all losing over 1% in their stock markets.
Then, a day after markets wore the brunt of his Tweet, Trump injected new hope into the minds of investors and markets by saying he was hoping to return to negotiations with China. Apparently, Chinese officials had called, asking to restart trade talks. However, Chinese Foreign Ministry Spokesperson, Geng Shuang, said he was not aware of said conversations. Hmm. Anyhoo, markets held onto this positive news, and the AUD saw a boost as a result.
The ebbs and flows of the trade war, often provoked by tweets from Trump, are not helping a slowing global economy looking down the barrel of a recession. As a precaution, many investors are moving into gold and treasuries, which are thought to be safer investments.
German data below expectations
German IFO data for July came in below expectations, falling from 95.3 to 94.3, well below market expectations of 95.1. The IFO analyses economic policy and provides monthly information on the business climate. 94.3 is the weakest it has been since December 2009 and is causing adverse flow-on effects to the German service sector, as seen by the Services Index dropping to its lowest point since June 2010. This data is another indication that Germany is heading towards a recession. Germany is one of the world’s biggest economies, so it’s downfall could very well be felt across the globe.
Brace yourselves, the UK House of Commons returns next week on September 3, and we expect things to get messy.
As it stands, Prime Minister Johnson only has a majority of one vote. This will no doubt make things challenging for him as MPs scramble before the October 31 Brexit deadline.
In the meantime, leader of the opposition, Jeremy Corbyn, plans to meet with other party leaders today (this evening Australian time) to discuss plans for avoiding a no-deal Brexit. His grand scheme is to take over as a temporary Prime Minister, seek an extension for the October 31 deadline, avert a no-deal exit and then have a general election. Sounds simple, right? Kinda like those ‘teatox’s’ that promise to help you shed 5kg in a week: promising and exciting but highly unlikely.
For now, I say we enjoy a non-detox tea and brace ourselves for the Brexit storm about to hit markets next week.
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