AUD News: Aussie dollar sees some gains as market risk appetite improves

After a pretty abysmal end to last week, the Aussie dollar has received a much-needed leg up over the weekend. As it stands, one AUD will buy you:

 

0.6873 US dollars

75.1797 Japanese yen 

0.6025 euros

0.5169 Great British pound

0.8904 Canadian dollars

0.9988 New Zealand dollars

0.9049 Singapore dollars

 

Compared to last Friday, the AUD has improved against all major currencies except the NZD. Whilst the change wasn’t huge, if you were exchanging $2000AUD on Friday compared to today you would be taking an extra:

 

11.80 US Dollars

803.80 Japanese yen

3.60 Great British pounds

3.60 euros

7.20 Canadian dollars

$11.40 Singapore dollars

 

For the USD and SGD that’s the price of some lunch - eat up!

Risk appetite improved at the beginning of this week’s trade, which generally means the Australian dollar rises against most currencies. This was the case for the vast majority of currencies except for GBP (more on that later). 

 

This “risk-on” atmosphere was brought on by better than anticipated January retail sales numbers in the US. As a result, investors may have been more confident in the state of the economy and therefore more willing to take higher risk investments. 

 

The improved risk appetite came despite the US retail sales December figure being revised down further from -1.7% month on month to -2.3% month on month. It sounds as though the US consumer is showing some caution in the last few months, similar to what we are seeing here in Australia. 

 

In Australia, the NAB Business Confidence Survey was released today. The survey has two readings – business confidence and business conditions. 

 

The business confidence reading fell 3 points to +4, due to weakening views towards profitability and trading conditions. Business conditions fell 2 points to +2, it’s the lowest level since January 2016. 

 

Alan Oster, Chief Economist at NAB stated, “While monthly movements in conditions have been hard to interpret in the early part of the year, this survey is based on a larger sample and surveyed well after the January period and suggests that conditions have materially deteriorated.” 

 

This is fairly consistent with what we’ve been seeing in Australian economic data towards the end of last year and the start of this year. It also aligns with various forecasts being made by a number of economists. 

 

Interestingly, one of the components of the business conditions survey, employment, came in unchanged compared to the January survey (+5). This survey reading is consistent with around 19,000 per month in employment growth which should be enough to maintain a fairly steady unemployment rate. The Reserve Bank of Australia (RBA) will be looking at employment conditions very closely when determining monetary policy and it will be one of the main pieces of data it looks at when deciding what to do with interest rates moving forward. 

 

Should they decide to decrease interest rates it is not good news for Aussie travellers, as investors move their capital elsewhere seeking a greater return. For this reason, we recommend keeping an eye on Australian and US interest rate movements if you are travelling soon, as they can have a major impact on the value of the AUD. 

 

British Prime Minister Theresa May has concluded talks in Strasbourg with the European Union. Reports are surfacing from Cabinet Office Minister David Lidington in a statement to Parliament that May has “secured legally binding changes” to “strengthen and improve” the UK’s current withdrawal agreement. 

 

These changes will not necessarily affect the current terms of the withdrawal agreement, rather just offering some legal assurances to back it up. In essence, the changes will provide some legal guarantees and a bit more clarification. 

 

This information provided a boost to the value of the GBP. This was not ideal for the Aussie traveller, who could get £1,041.80 exchange $2000AUD yesterday, compared to £1,033.80 today; a difference of £8. 

 

British MPs are now set to vote on the said deal Tuesday UK time. If the agreement is not passed, there is likely to be a string of other votes throughout this week to rule out a no-deal Brexit and potentially extending the March 29 deadline altogether. 

 

It’s a big week for Brexit, as we might actually get some clarity on what is happening after two years of uncertainty. This could very likely have a further effect on the value of the GBP against the AUD, so we recommend adding Rate Guard to your purchase in store as a safeguard. If the rate improves within 14 days of purchase we will refund you the difference*. 

 

 

This refers to changes in investment activity based on the level of risk tolerance in the market. If the risk is perceived to be low (risk-on) the theory states that investors are more willing to engage in higher-risk investments. Likewise, when the risk is perceived to be high (risk-off), investors will seek lower-risk investments.  The Aussie dollar is considered to be a higher-risk investment, so it’s value will generally increase during risk-on moods when risk appetite is high.