It was a quiet trading session overnight and into this morning, with no major news or data releases due to long weekends in the US and UK. This means that for the most part, the AUD has remained within the same narrow trading window as the back end of last week.
That said, there has been a slight rise in the AUD/GBP on the back of the European election results and Brexit uncertainty, making it a little easier on Aussies travelling to the UK. Currently, 1 Australian dollar will buy you:
0.6764 US dollars
73.0747 Japanese yen
0.5285 Great British pound
0.8849 Canadian dollars
1.0271 New Zealand dollars
0.869 Singapore dollars
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Consumers feeling more confident ahead of likely rate cut
Due to the US and UK enjoying long weekends, there has been a lack of major international data or information affecting Australian share and currency markets. Domestically there isn’t too much to get excited about in the short term either, with most economists and consumers holding their breath until the Reserve Bank meet next Tuesday to make their decision on interest rate levels.
That said, data released this morning by ANZ-Roy Morgan shows there has been some slight positive movement in consumer confidence levels since the Federal Election. According to the survey, family finance confidence now and looking one year into the future improved by 1.2% and 0.8% respectively. General sentiment toward the economy looking one and five years ahead also improved by 3% and 4.5% on the prospect of lower interest rates and perceived favourable business conditions. Put simply, Australians are a little more confident now than they were earlier this year.
It looks like the AUD/USD will continue to remain in its recent tight trading range until something shakes it up. A 4th June RBA rate cut is not expected to have a negative effect on the AUD, unless the RBA statement provides insights into further RBA rate cuts, due to it being priced in and well accounted for after months of speculation.
The UK needs a new PM, Brexit Party increases power
While Australian domestic political conditions have settled down somewhat post-election, it appears the UK is only just starting to really heat up. British Prime Minister, Theresa May announced on Friday that she would be stepping down from the role as Conservative leader on 7th June, opening the door for a protracted contest to find the new leader of the embattled party.
Mrs May had been under enormous pressure for failing to pass four separate iterations of a Brexit deal while losing 31 of her Senior Ministers for various reasons along the way. In an emotional statement, Mrs May reiterated that she had done her best to deliver a timely and effective Brexit and it was a matter of "deep regret" that she hadn’t been able to. Mrs May will continue to serve as Prime Minister while her Conservative party undertakes a leadership contest.
The GBP remained relatively flat post announcement, confirming that the markets had indeed priced May’s resignation into currency markets. It remains to be seen what effect the race to replace Mrs May will have, with more than a dozen MPs believed to be gearing up for a shot at the role. Foreign Secretary Jeremy Hunt has recently announced he will run for the position, joining Esther McVey, Rory Stewart and hardcore Brexiteer Boris Johnson and as the other confirmed candidates. If a candidate supportive of a no-deal Brexit wins the race to become new Conservative leader, it is expected the GBP will weaken quite a bit compared to other major currencies.
In other important developments for the UK and Europe, all eyes have been on the results from Sunday’s European parliamentary elections. In a sign that the UK is sick of hearing about a drawn-out Brexit, Nigel Farage’s Brexit Party was the biggest winner from European Parliament elections over the weekend, with 32% of the total votes. In contrast, the current party in power, The Conservatives, received just 9% of the votes.
Even though pro-Brexit parties received more votes than Remainer parties, more people voted for a second referendum than for a no-deal Brexit. Labour Leader Jeremy Corbyn has promised to allow a public vote on any Brexit deal before the UK leaves the European Union, opening the door for an increasing risk of a General Election and even a second referendum on whether to leave the EU at all.
If Brexit is still making your head spin, check out our Brexit guide for Aussie travellers for information on what it means for you and your travels.
The US is on holiday, but the Trade War isn’t
The Memorial Day long weekend might mean an extra day of relaxation for plenty of Americans, but it has done little to slow down the negative Trade War rhetoric from both sides. Taking time out from a round of golf with Japanese Prime Minister, Shinzo Abe, President Trump was again talking tough on trade tariffs. Trump more than hinted that the US isn’t quite ready to make a deal to put the Trade War to bed and that tariffs on Chinese goods “could go up very, very substantially, very easily”. With D-day rapidly approaching for more increased tariffs on trade between the US and China, neither side appears to be giving an inch.
Global markets are wary of an increased risk that the next move in the Trade War will be the US imposition of 25% tariffs on the remaining $300bn of Chinese imports in conjunction with the banning of Chinese tech companies, with China likely to strongly retaliate. Last week, Xi Jinping made reference to the Communist Party’s 1934 struggle against the Red Army by saying China must prepare for a new Long March. Xi’s comments were broadcast on Chinese state television and could easily be seen as preparing Chinese citizens for a worsening economic environment in China as a result of the trade war with the US.
With the Trade War morphing into a Tech War, taking US technology stocks on a rollercoaster ride with no end in sight, things may get worse before they get better.
If you’re travelling during these uncertain times, make sure to protect yourself with Rate Guard. Add it when you buy your foreign currency in store. It’s free, and if the rate improves within 14 days, we will refund the difference.
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