As we close out another week, and I get one day closer to starting my chocolate advent calendar, the Aussie dollar is struggling under the weight of mixed market signals. The most significant influence on the value of the AUD continues to be the trade war between China and the US. As there is still no clear outlook on its progress, markets and the AUD are feeling the pressure. With this in mind, today, one Aussie dollar will buy you:
0.66 US dollars
70.5181 Japanese yen
0.5885 Euros
0.5056 Great British pound
0.8471 Canadian dollars
1.0232 New Zealand dollars
0.8719 Singapore dollars
I hate to be the bearer of bad news, but the AUD is currently down on all major currencies since this time last week. Stress less about less than ideal exchange rates by adding Rate Move Guarantee to your purchase in any Travel Money Oz store. It’s free, and if the rate improves within 14 days, we will refund you the difference*.
Currently, in the world of macroeconomics, the trade war and Australian monetary policy are the main drivers of fluctuations in the Aussie Dollar’s value. We’ve broken them down below.
US/ China trade negotiations
Conflicting reports cloud market sentiment around the trade war. On the positive side, a Chinese trade negotiator said he was “cautiously optimistic” about reaching a phase one deal. Further to this, the US has said it may be willing to delay the scheduled tariff increase on December 15 even if a deal is not reached.
Meanwhile, the US House of Representatives and the Senate have approved the Hong Kong Human Rights and Democracy bill. Trump needs to sign, and it will become law. This is a tricky situation, as both the Hong Kong and Chinese governments oppose the Bill. So much so, that China has threatened to retaliate if the Bill is signed, and declared that supporting Hong Kong protests was gross interference in their affairs with Hong Kong.
While China hasn’t directly said that signing the Bill will impact trade negotiations, the whole situation has left markets cautious, thus putting downward pressure on the value of the Aussie Dollar.
It’s worth noting that markets have already priced in a phase one deal. This means they have already accounted for the deal being approved in their currency forecasts. Should an agreement not get passed, the Aussie dollar will experience downward pressure. As you can imagine, this is not great news for Aussie travellers hoping to supersize their foreign currency.
Australian monetary policy
At the start of the month, the Reserve Bank of Australia kept interest rates on hold. This week the minutes of their meeting were released and showed that they came very close to cutting rates. Meeting notes highlight that they choose to keep rates on hold for the time being to give the economy time to see the benefits of previous cuts, tax cuts and a general lift in the global economy.
Why did the RBA come so close to cutting rates? Well, long story short, the Aussie economy is in a bit of a pickle. Data released this week shows that Australian household debt is at a record high at 202% of annual income. This is extreme, especially considering the ratio was at 178% pre-Global Financial Crises.
Unemployment has risen, and wage growth has slowed and, when coupled with high debt, leaves households vulnerable and unwilling to spend as much. A lack of spending means the economy slows down, failing to reach inflation targets required for its longevity.
An interest rate cut would lower the burden of repayments and hopefully give consumers more cash to inject in the economy. While a cut isn’t great for the value of the Australian dollar, it may be necessary to ensure the health of our economy.
With all of this in mind, markets are expecting another rate cut by February 2020.
Until then, keep your eye on the Trade War and general economic sentiment to get the best idea of how the Aussie Dollar will perform.
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