30th October 2018
Overnight we saw the Aussie dollar drop from 0.7105 to 0.7060 against the USD, underperforming against most of the major currencies. This comes after last Friday saw the weakest AUD level against the USD since February 2016.
There wasn’t a single key trigger behind this performance; rather it comes as a flow on effect off the back of a strong USD and poor CNY performance.
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Both the Aussie and Kiwi currencies have fallen steeply against the USD since the start of the year.
This week the market has seen upwards pressure on the USD, after US domestic data showed wages and salaries grew at an above average annual pace of 4.6% in September (it has hovered around 4.2% since 2011).
What does this mean for travellers? It is a great opportunity to capitalise on the strong USD and sell back any notes you have leftover from your trip to the States. The average Aussie traveller returns home with $184 worth of travel money. Capitalising on a stronger holiday currency when selling back can definitely soften the blow of your post holiday blues, and help you start saving for your next adventure.
Markets continue to keep an eye on the US/China trade war, especially amidst reports that President Trump is preparing to announce tariffs on all remaining Chinese imports if his G20 meeting with Chinese Leader Xi Jinping fails to ease trade tensions. Considering there are already tariffs on $250billion worth of Chinese exports to the US, this would be a real blow to the Chinese economy and the Yuan.
The trade war and its resulting downwards pressure on the CNY is a challenge for the AUD, as China is Australia’s top trading partner. A decline in demand for Chinese imports in the US means a decline in the demand for Australian exports to China; and less demand for exports means less demand for our currency.
This is evident, as Friday’s drop in the AUD mirrored movements of the Chinese Yuan which fell to its weakest level in over a decade against the USD.
In other news around the world, German Chancellor Angela Merkel announced she would step down at the end of her term in 2021. This briefly sparked some volatility in the Euro, however it had a limited effect on the AUD.
The UK treasury also presented its 2018 Autumn budget statement on Monday, however there was little effect to the AUD against the pound.
A lack of Brexit developments last week, paired with the fact that there is no deal in sight between the UK and EU could result in investors hesitating to make much of a move on the pound. Whilst the pound has been slightly weaker against the Aussie dollar since October as the prospect of Brexit continues to linger, the market expects the AUD/GBP exchange rate to be driven more by risk sentiment and Aussie data. Unfortunately, the AUD is struggling to take advantage of this, as investors are wary of its performance considering the US/China trade war.
If you are looking at purchasing currency for your end of year holiday, or perhaps planning a trip next year, it is definitely worth keeping and eye on how the AUD is performing. Educate yourself, and find some tips on foreign currency forecasting. This knowledge can potentially end up saving you some solid coin, which equates to more poolside cocktails when on holiday.
Heading overseas soon? Add Rate Guard* to your transactions in store. It’s free, and gives you some well earned peace of mind. If the exchange rate improves within 14 days of purchase, Travel Money Oz will happily refund you the difference.
Definitions for those of us playing at home
This is a subjective market term that describes how investors are behaving and feeling in the market. Investors are either ‘seeking risk’ or ‘risk averse’. If there is a good overall economic outlook, there will be a positive risk sentiment as investors seek risk as they feel more confident to buy ‘risky’ assets and sell of ‘safer’ investments. The Aussie dollar is generally considered to be a risky investment. So, when there is a risk averse attitude investors are less likely to be purchasing the AUD.
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Leftover currency data sourced from finder.com. April 2018.