AUD News: Aussie dollar under pressure in lead up to RBA interest rate decision

It’s been a long week for the Aussie dollar, and we’re not referring to the fact that it was the first week without a public holiday in a while. After a pretty rough trot last week, the Aussie dollar seemed to slowly dust off its trousers before taking another blow courtesy of data out of the US. With this in mind, as we head into the weekend one AUD will buy you:

0.6807 US dollars

74.6532 Japanese yen

0.6004 euros

0.5161 Great British pound

0.8865 Canadian dollars

1.0211  New Zealand dollars

0.8991 Singapore dollars

 

 

Let’s take a look at what impacted the Aussie dollar this week, and what we should expect for the week to come. 

 

Yesterday the US Federal Reserve Bank (Fed) kept interest rates on hold at the range of 2.25 - 2.5%. This decision was accompanied by a statement saying that the “labour market remains strong and that economic activity rose at a solid rate.”

 

Their choice to keep rates on hold comes despite pressure from Wall Street and the White House to ease monetary policy, or at least communicate an easing bias. In other words, they wanted the Fed to either lower interest rates or at least hint towards cuts in the future. 

 

President Trump tweeted about this on Tuesday, urging the Fed to slash interest rates by a full percentage point as the economy would go “up like a rocket”. Unwavered by Trump’s calls, Fed Chair Jerome Powell said that they “don’t see a strong case for moving in either direction”. 

 

Off the back of this decision, markets have shifted their stance on future interest rate cuts this year. Last week there was a 100% probability of a rate cut in 2019, this week the chance has gone down to 65%. In saying that, nothing is ever certain and currency markets are about as predicatable as the weather. 

 

All of this culminated in downward pressure on the already weak Aussie dollar. An interest rate cut in the US generally puts upward pressure on the value of the AUD as it becomes a more viable option for investors seeking a higher return. Keeping rates on hold or increasing interest rates has the opposite effect and can lead to a decline in the value of the AUD which is not great for Aussie travellers. 

 

Later today will see the release of US non-farm payroll data for April. This data accounts for employment in goods, construction and manufacturing companies, excluding (as the name would suggest) farm workers, private household employees and non-profit organisation employees. 

 

This release could have an impact on the value of the Aussie dollar, especially if it is better than markets expect. As much as we want people to be employed in the States, if the report contains a better result than markets expect, it could put even more downward pressure on the poor little AUD and, in turn, Aussie travellers exchanging their travel money. 

 

Last week we saw the Australian Consumer Price Index (CPI) come in under market expectations, which lead to a pretty gnarly tumble in the value of the AUD. 

 

This data caused markets to shift their stance on the Reserve Bank of Australia’s (RBA) next interest rate move. There is a 45% chance that, during their monthly meeting next week, the RBA will cut Australian interest rates. If not this month, rates will be cut in June with another cut to follow before the end of 2019. Rough. 

 

The result? Well risk appetite (this is the appetite of investors to purchase the AUD) has declined and the Aussie dollar is in a vulnerable state. Should the US pay-roll data be better than expected AND the RBA cut rates, the AUD might need a little cuddle and pep-talk, maybe even a tub of ice cream. 

 

However, should the RBA keep rates on hold next month, there is likely to be a sigh of relief for the AUD and travellers. 

 

Why are they cutting rates if it isn’t good for the AUD, I hear you ask? The RBA takes into account a lot more than just foreign currency when making their interest rate decision, and generally, the welfare of the greater Australian economy is of most significant concern to them. Annoying, I know; don’t they realise we need to get travel money for our upcoming European summer holidays? Help a sister out.