It’s been a punishing week for the AUD this week from the moment the RBNZ went rogue and dropped their interest rates by 0.50%, surprising economists and shaking up foreign exchange markets. With the US/China Trade War continuing to throw curveballs as well, the AUD was forced down to lows against the USD not seen in a decade at the peak of the GFC.
Thankfully markets and tensions have simmered down slightly over the last few days and the Aussie dollar looks to have stabilised slightly against most of the major currencies.
Since last update the AUD has risen (slightly) against every major G10 currency and 1AUD will currently get you:
0.6595 US dollars
68.5845 Japanese yen
0.581 euros
0.5371 Great British pound
0.8442 Canadian dollars
1.0113 New Zealand dollars
0.8833 Singapore dollars
RBA on hold as Liberal MPs take aim at Reserve Bank policies
In amongst the surprise of the super-sized rate cut across the Tasman and the US/China currency (Trade) it’s almost easy to forget that our own RBA met on Tuesday afternoon. Easy to forget because it was pretty tame compared to the rest of the week we were having, with the RBA leaving rates on hold and throwing no major curve balls in their policy notes. The RBA did lower their GDP and inflation outlook with Chairman Lowe stating he was disappointed with the recent sluggish economic growth and rising unemployment which has been keeping wage growth subdued.
All in all in was a pretty standard meeting by RBA standards and the market can get to work now working out the odds of a rate cut in September.
The RBNZ decision to slash interest rates across the ditch major had flow-on effects for the Aussie dollar, which slumped almost a full cent against the greenback, hitting a 10-year low of 66 US cents. The main reason the AUD fell alongside its trans-Tasman counterpart is investors now expect the RBA to follow suit with a cut of their own, as it did with rate cuts earlier this year.
Meanwhile, Liberal MP Tim Wilson, chair of the government’s economics committee, accused Mr Lowe of having “thrown up his hands and said he has exhausted the options of monetary policy” before preparing to grill the RBA chair at hearing in Canberra today. It comes as former Prime Minister John Howard warned the RBA may have gone too early and cut rates “too far”, leaving Australia defenceless in the event of another global downturn.
While exporters might be over the moon with the lower AUD and interest rates where they are, it appears not everyone is. Donald Trump has taken a very in ya face attitude with the Federal Reserve, maybe Australian pollies are trying to bring the same here.
All I know is watch closely.
BOJO confident of new Brexit deal with EU, even if the EU isn’t
British Prime Minister Boris Johnson has urged his MPs to "get on and deliver" Brexit as he continued to insist a new agreement with the European Union could be brokered before Britain is due to leave on 31 October. Boris was adamant there will be no more dilly dallying and extensions after the Halloween deadline but also that the "unacceptable" Northern Ireland backstop had to go; a non-negotiable for the EU.
It appears the UK are really no closer to leaving the EU with a functional deal than they were 2 years ago, a fact that hasn’t been lost on consumers or businesses in Britain.
Even the powerhouse of Domino’s hasn’t been left unscathed with the company saying the probability of shortages of ingredients due to a messy Brexit have risen since earlier this year. To combat disruptions to ingredients such as Portuguese tomato sauce, Domino’s has set aside £7m to stockpile the essentials.
The GBP has been hammered from pillar to post since the Brexit drama began and that pressure doesn’t look like relenting any time soon.
Trump puts the blowtorch on Federal Reserve for “bigger and faster” rate cuts
Not content with just Tweeting China his displeasure of their monetary policy decisions, US President Trump has taken aim once again at a friendly, the Federal Reserve for their interest rate policy.
One thing with Trump’s tweets is they always seem to get him what he wants. It was just over a week ago that the Federal Reserve relented to Trump’s pressure to drop interest rates and made a cut of .25%, but that doesn’t appear to have satisfied Donald’s taste for cuts. What is a President to do when the Fed doesn’t drop rates as much as he wants?
Stoke the Trade War fire on twitter of course.
Trump tweeted that he intends to impose new tariffs of 10% on $300bn of Chinese goods from September 1st, spooking markets and driving the Dow Jones, S&P and Nasdaq all to recent lows. That pressure and the resulting Trade War mayhem puts the pressure right back on the Federal Reserve to tidy the mess up with another big interest rate cut. The thinking goes a cut could stimulate the stock markets and help struggling exporters by weakening the USD.
Trump’s tweets and the Trade War served as a bit of a bump for the USD which fell slightly against the major currencies, helping a struggling NZD and AUD out of a mid-week hole. For the short term, the Trade War, Trump’s tweets and interest rates remain the drivers of the USD and indeed most currencies around the world so it’s important to watch closely and follow and changes to rhetoric or policy if you want the best currency deal.
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