Gobble Gobble, it’s American Thanksgiving! Well, it was yesterday at least, which meant US markets were closed overnight. As American’s fall into a turkey-fuelled slumber, the Aussie dollar seems to be in somewhat of a food coma as well with no significant movements. Since last week the AUD is up against some currencies like the JPY and EUR, but down against others like the USD, GBP and CAD. With this in mind, one Aussie dollar will buy you:
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What is impacting the Aussie dollar?
US/China trade war
Thanksgiving market closure today didn’t stop the US from having a busy start to the week.
Late Wednesday night US President Donald Trump signed into law a bill that supports protestors in Hong Kong. The bill expresses support for the HK protesters, requiring an annual review of Hong Kong’s special trade status under American law. It also sanctions against any officials responsible for abuses against human rights or actions that undermine the cities autonomy from China. In addition to this, Trump signed the Protect Hong Kong Act that bans the sale of American munitions to Hong Kong law enforcement.
Trump’s decision to sign the bills resulted in strong disapproval from China, who said it would take “firm countermeasures”, viewing it as interference in an internal matter.
The events have put the success of a partial trade deal between the US and China in question, with many worried it will halt negotiations. While this has slightly dampened market sentiment and added slight downward pressure to the value of the Aussie dollar, markets aren’t too concerned that it will negatively impact a trade deal between the two countries. Why? Well, China kinda knew that Trump would sign the bill last week and negotiations have continued. Likewise, a Chinese academic said, “it does spoil the mood, but it shouldn’t interfere with the trade talks”.
Fingers crossed this is the case, and the partial trade deal continues. If it doesn’t the value of the Aussie dollar will almost definitely take a hit.
Brexit and the UK election
While the events in the UK haven’t directly impacted the value of the Aussie dollar, they have given the pound a slight boost.
With less than two weeks until the UK election, the YouGov-MRP poll showed that Conservatives could win a majority of 68 seats. This was good news for the GBP, which increased in value after the poll results.
However, there has been a late surge of almost 3.1million people enrolling to vote, 1.2milion of which are under 25 years. Why does this matter? Those under 25 tend to vote in Labour’s favour, with many being encouraged by celebrities like Stormzy. While it is unlikely that Labour will win with a majority, there is a chance they could scrape through with enough seats to gain a minority which would, once again, put the UK at a standstill with Brexit.
Things will no doubt ramp up over the next fortnight, so strap yourselves in as the Brexit mess is about to become news again.
Despite the Reserve Bank of Australia remaining wearily optimistic on the outlook of the Australian economy, mentioning the impact of low interest rates, tax cuts and public spending, local data is still declining.
This week saw the release of lower than expected Capex data. While this didn’t impact the value of the Aussie dollar too much, decreased equipment spending figures will feed into GDP figures released next week, and are likely to subtract around 0.2points from Q3 GDP.
These are just further signs that the Aussie economy is struggling. For the sake of the economy and the AUD, I hope the RBA is correct in their slight optimism that we have reached a ‘soft turning point’ in the state of the economy.
Markets expect the RBA will keep interest rates on hold during their December meeting; however, they have almost entirely priced in another interest rate cut to 0.5% by April 2020.
As markets reopen for Friday trade in the USA, all eyes will turn to see if there are any significant changes to the state of the trade war. Fingers crossed this is not the case, and everyone is still in a haze of turkey and pecan pie.
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