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25th June 2019
The Australian dollar has continued its recent upward trend against the USD over recent days, and the further weakening US dollar index has some AUD/USD bulls coming out of the woodwork after a topsy turvy month. It wasn’t quite champagne all round for the Aussie dollar though, losing a couple of pips to the EUR and GBP but making slight gains against the JPY, SGD and CAD.
At the moment 1 AUD will buy you:
0.6771 US dollars
71.4562 Japanese yen
0.5859 euros
0.5255 Great British pound
0.8631 Canadian dollars
1.0157 New Zealand dollars
0.8885 Singapore dollars
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Growing likelihood of RBA rate cut keeping the AUD grounded
The AUD has shown signs of life this week against the Greenback in particular as the Federal Reserve and President Trump square off in yet another headline-grabbing stoush. The President was livid at the Fed for not dropping rates at their recent meeting, a move he thinks is holding the US economy back. The AUD appears to have found support around the 0.67-0.68USD mark for now, but increasing speculation the RBA is gearing up for another rate cut in July is keeping the AUD’s feet planted firmly on the ground for now.
As the G20 meeting approaches, the market is holding out hope that US/China trade relations can move on positively after the months of tariffs and taunts have taken their toll on global confidence and trade. The lack of upcoming domestic data until the RBA meets next month usually means that politics will be the main driver of AUD performance in the short term. Keep twitter handy folks!
The result of US/China trade talks is important for the Australian trade-heavy economy and the Aussie dollar alike. The more confidence the market, traders and investors have in the worldwide trading environment and local conditions, the better our dollar should perform.
Johnson faces personal pressure test as GBP struggles for traction
In the UK, personal issues for Conservative Party leadership candidate Boris Johnson have been grabbing the headlines over the last few days as some key British politicians, including rival Jeremy Hunt, have demanded clarification over a ‘row’ that occurred on the weekend at Johnson’s home. In an interview with the BBC, the Conservative Party leadership hopeful said it was "simply unfair" to drag “loved ones” into the political debate. It doesn’t look like curiosity is going away any time soon though, so Johnson may be facing some further pressure on top of his plan for Brexit.
What was the Brexit plan again? Nobody can really seem to give a straight answer on that at the moment. Johnson believes it is possible to broker a new deal with the EU before the October 31 deadline, but a no-deal solution remains on the table if push comes to shove. With no Brexit light at the end of the tunnel yet the GBP is expected to remain under pressure against the AUD and other major currencies but plenty of uncertainty remains in the short-medium term.
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USD struggles on China trade deal doubts, tension with Iran and stubborn child
If there was speculation over the last few months that President Trump wasn’t the biggest fan of the Federal Reserve or its chairman, Jerome Powell it was confirmed this week. The President stuck to his MO of tweeting his grievances and said yesterday of the rebounding US stock markets: “despite a Federal Reserve that doesn’t know what it is doing.... we are on course to have one of the best months of June in US history”. Doubling down on the tough tweeting, Trump compared the Fed to a “stubborn child” (not the way around you expected?) for not dropping interest rates in line with other countries to stimulate inflation. So far the Federal Reserve have not responded to the President’s tweet, re-tweeted it or liked it, giving Trump the silent treatment perhaps.
Tensions in Iran have also increased as the US imposed new sanctions on a host of Iranian assets, including those of Supreme Leader Ali Khamenei. President Trump said the new sanctions come as a result of the shooting down of a US drone and "many other things". Tweeting that the Trump Administration has a “thirst for war”, Iranian Foreign Minister Javad Zarif also added that Americans "despise diplomacy". I still can’t get over watching world leaders bicker on social media about such high-level actions; modern diplomacy is crazy, kids.
All eyes are on the upcoming G20 in the hopes America and China can put their recent tensions behind them and move forward in a more constructive and stable manner for the good of the global economy. One less trade/real war on the table would be greatly appreciated by the international trade and economic communities. Thankfully China has eased up the tone of their rhetoric in recent days, and Trump has been too busy to Tweet anything too interesting on the tariff front, so at this stage, markets are simply guessing, slightly weighted in the negative.
The Bears aren’t exactly circling the USD yet, but if it can’t put the Trade War drama to bed shortly and interest rates come down in the coming months, the Greenback will be facing even more downward pressure.
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