AUD News: Less than impressive GDP data adding to downward pressure on the AUD.

As we close in on the end of another week, our Aussie dollar is working hard to keep its head above water amidst a relatively busy week in markets. As it stands, one AUD will buy you:

 

0.6814 US dollars

74.7778 Japanese yen 

0.6007 euros

0.5151 Great British pound

0.8868 Canadian dollars

1.0027 New Zealand dollars

0.8992 Singapore dollars

 

There are a few key elements influencing global markets, and evidently the AUD. We’ve tried our best to simplify them below.

 

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Perhaps the biggest events adding downward pressure to the value of the AUD this week were the release of Aussie Gross Domestic Product (GDP) and consumer spending, as well as a speech made by Reserve Bank of Australia (RBA) Governor Lowe. 

 

On Tuesday GDP data was released that showed the Aussie economy expanded by 0.2% in Q4 2018. This followed the measly increase of 0.3% in Q3. Furthermore, this showed the GDP growth has slowed from 3.8% in H1 2018 to 0.9% in H2. This is not ideal. 

 

This slowdown is reflective of a number of issues facing Australian consumers which are, evidently, reducing the amount they are spending. Issues such as a slowdown in residential construction, falling residential sales, continued effects of the drought on our farmers and exports are squeezing the wallets of Aussie consumers and the AUD. The minuscule lift of only 0.1% in retail trade is a further reflection of this. 

 

It’s not all bad news though, as the Australian economy is still seeing significant growth in nominal GDP, as well as a large trade surplus in January. In other words, the economy is still receiving a large amount of income from other countries. 

 

RBA Governor Lowe discussed this in his speech this week, also highlighting the fact that our employment growth had been strong, accelerating over the last four months. So, despite some less than ideal data, “the labour market suggests the economy is going pretty strongly”.

 

Our strong employment data was not enough to bolster the AUD though, it is now trading at two month lows against the USD after the GDP data was announced. 

 

The Canadian dollar followed suit, also trading at two month lows on Wednesday as markets react to the possibility of Canadian interest rates remaining on hold. It seems both countries are seeking a monetary policy that will counter the effects of their softening economies. 

 

On Thursday the European Central Bank (ECB) confirmed market predictions by saying it would not raise interest rates in the eurozone before 2020. 

 

Markets predicted this decision amidst an economic slowdown across Europe that has pushed Italy into a recession and slowed Germany economic growth to almost zero. As a result, the Euro fell slightly. Unfortunately, Aussies were not able to see a whole lot of benefit out of this drop, as our own domestic data was enough to counterbalance any gains of the AUD against the EUR. 

 

Today marks the end of the first week of China’s ‘two sessions’ meetings. It is China’s biggest annual series of political meetings held between The National People’s Congress and the Chinese People’s Political Consultative Conference. Over 3,000 delegates attend the meetings.   

 

So far this week China has announced an annual economic growth target of 6 - 6.5%, alongside a 7.5% rise in military spending. Next week markets expect to see delegates endorse a law that aims to ease Chinese tensions with the US and Europe, as well as an announcement of tax cuts and greater support for entrepreneurs that generates much of China’s new jobs and wealth. 

 

These meetings are happening alongside the continued trade talks between China and the US. President Trump. Trump has highlighted his optimism that a trade deal is close, however, Chinese officials are not as affirming in their stance. Whilst both countries have agreed to broad outlines of an agreement that has seen tariffs in both countries roll back, some of the biggest elements are still yet to be confirmed. These are expected to be discussed further when Trump and Chinese President Xi Jinping meet in late March / early April. 

 

Markets have seemingly ‘priced in’ (or accounted for) the positive progress of the trade war. Should things turn sour it would be another blow for the AUD due to our strong ties with China. 

 

Only 20 sleeps until Brexit! As the UK and global citizens alike countdown the days until Brexit, British MPs still really don’t know what is happening with this whole ‘leaving the EU’ thing. 

 

Despite sounding like a broken record, there really is nothing different to report from this time last week. Prime Minister May will face MPs next Tuesday (again) in the hope that they will vote in favour of her Brexit agreement. Should this deal get voted down, MPs will most likely vote on Wednesday to remove the possibility of leaving the EU with no deal. If this vote is successful MPs will then have another vote on Thursday on whether they should ask the EU for an extension. 

 

Three votes in one week? Sheesh, the poor MPs might actually have to do their job and make a decision! Crazy, I know. Here’s hoping they can pull their fingers out and place their votes with Britain’s best intentions in mind. Either way, this time next week we should have a much better idea of the UK’s trajectory in regards to leaving the EU. 

 

The value of the AUD against the pound has seen a steady decline since a peak on the 3rd of December 2018, where one Aussie dollar would buy 0.5554GBP. Today’s rate of 0.5151 is significantly lower, and would see you taking £80.60 pound less if you exchanged $2000AUD now compared to December 3rd. The pound’s renewed strength can most likely be attributed to the fact that leaving the EU with no deal is becoming less of a possibility. The Aussie dollar has also been facing its own battles irrespective of Brexit, which has put further downward pressure on its value. 

 

The uncertainty that lays ahead for the UK will no doubt have an effect on the value of the pound. If you are heading over there soon, we recommend checking out our article on how it may affect your travels. Don’t forget to add Rate Guard to your currency purchase in store either. It’s free, and if the exchange rate improves within 14 days of purchase we will refund you the difference*.