How low can you go? No, it’s not an impromptu conga line at Friday night knock-off drinks. Instead, it’s the Aussie dollar, steadily falling to fresh lows as the world comes to terms with the current Coronavirus outbreak. Despite slightly better than expected domestic inflation figures and today being B-day (or Brexit day for those playing at home), the Coronavirus continues to dominate global headlines and market movements. With this in mind, one Aussie dollar will buy you:
0.6466 US dollars
68.6418 Japanese yen
0.4857 Great British pound
0.8326 Canadian dollars
0.9814 New Zealand dollars
0.858 Singapore dollars
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What is impacting the Aussie Dollar this week?
The Wuhan Coronavirus is proving to be a considerable concern for markets, driving down risk-sentiment, which is bad news for the Australian dollar. Overnight the World Health Organisation declared a public health emergency of international concern, as the virus continues to spread and the death toll rises. While the mortality rate is lower than that of the SARs outbreak of 2003, the prevalence of social media and magnitude of global travel has led to growing concerns about how quickly and far the virus will travel.
This concern has made markets more cautious, flocking to ‘safe haven’ currencies like the USD, JPY and CHF for refuge and deserting ‘riskier’ currencies like the AUD and NZD.
Global concern aside, the virus has stemmed from China - Australia’s biggest trading partner. The Australian economy has inextricable links to China, and China’s decision to shut down factories and markets to prevent further spread of the virus is impacting agriculture prices and weighing on future GDP estimates. Not to mention the fact that major ports and transport links have either been closed or disrupted as a result of the virus.
All of this has put significant downward pressure on the value of the Australian dollar. Markets are also dubious as to China’s ability to fulfil their end of the freshly signed trade deal with the US. If the virus continues on its current trajectory, keeping China at a standstill, it will prove difficult for them to purchase the US$200billion worth of US goods over the next two years.
Chinese markets were closed this week for Chinese New Year. They will remain closed until Monday at the earliest; however, there are no guarantees as to when they will open for sure as China continues to grapple with the Coronavirus.
Australian inflation figures for the December quarter were released this week and came in slightly above market expectations. While this is good news, the figures are still relatively low and are in line with the Reserve Bank of Australia’s measly forecasts. The December quarter inflation rose by 0.7%, bringing annual inflation to 1.8%.
The fact that these numbers are in line with RBA forecasts means it is unlikely they will cut interest rates in their February meeting next week. Interest rates should stay on hold at 0.75%; however, markets are expecting a cut by April.
As we have said in previous articles, the Australian economy isn’t so crash hot at the moment. While it is good that inflation isn’t below RBA expectations, it is important to note that these expectations are already quite low. Persistently low or weak inflation will continue to hurt the Aussie economy, especially when it comes to slowing wage growth and higher unemployment. As our economy weakens, so too does the value of the Australian dollar.
The UK - It’s Brexit Day!
On Thursday the European Union ratified the Brexit agreement. This means the UK will officially no longer be part of the EU as of midnight tonight Brussels time, or 11 pm UK time. What now? Well, both the UK and EU will enter a transition period, working out new trade deals with each other and the rest of the world. This process won’t happen overnight, and could very well have an impact on the value of the GBP as time progresses.
That’s not the only thing happening as a result of Brexit, though! At midnight all British flags will be removed from EU buildings, and the EU flag will be lowered from British delegation offices. Perhaps the most exciting thing to happen, is the fact that three million commemorative 50p Brexit coins inscribed with the date and “Peace, prosperity and friendship with all nations” will enter circulation in the UK. Keep an eye out for these little gems the next time you’re in the motherland.
Brexit aside, this week the Bank of England kept their interest rates on hold. This was unexpected by markets, and the GBP was boosted as a result.
Looking forward to next week, it appears that the Coronavirus will continue to dominate headlines and determine market movements. Be sure to sign up to the Travel Money Club to stay in the loop with the latest foreign currency developments, and be in the running to win $500 every month.
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