As you peruse the Dominos' cheaper Tuesday flyer and realise the deals are exactly the same as last week (cheap and delicious, though), I'm afraid I have the same to report about global foreign currency markets. No, they're not cheap and delicious, but instead, they are being faced by the same issues as last week, last month and, quite frankly, last year. The trade war between the USA and China, US interest rates and Brexit continue to dominate headlines and control market sentiment. So far this week they have not played in the AUD's favour. With this in mind, one AUD will buy you:
0.6547 US dollars
69.0632 Japanese yen
0.5884 Euros
0.5264 Great British pound
0.8422 Canadian dollars
1.0336 New Zealand dollars
0.8764 Singapore dollars
An extra garlic bread when you order three large pizzas from Dominos.
If you need some foreign currency for an upcoming trip, we recommend adding Rate Move Guarantee to your purchase at any Travel Money Oz store. It's free, and if the rate improves within 14 days of purchase we will refund you the difference!* Sure, it's not $1 garlic bread, but it could mean an extra slice of traditional pizza in New York or a few extra croissants in Paris.
US-China trade war
Negotiators from both the US and China will once again meet on Thursday to resume trade talks. Markets are sceptical as to whether the two countries will have any breakthroughs in the negotiations due to some pretty severe structure differences between them. Key differences include intellectual property protection, forced technology transfer and industrial policy. All of these points have caused issues in the past, so it's no surprise that markets are concerned about them this time around.
As a result of this concern, market sentiment is pretty low, which is not ideal for the Aussie dollar. This week we have already seen modest depreciation against the CNY and JPY which, in turn, has put downward pressure on other Asian based currencies including the AUD.
If, as suspected, no trade deal is met, there is an upside risk to the USD/CNY. In other words, there could be some upward pressure against the USD.
Regardless of the trade war, though, the USD is currently underpinned by global economic activity and its current downside risk, which brings us to our next point.
USD News
A mixed bag of data out of the US has had an impact on the value of the USD. August consumer credit rose more than expected to a three-year high and was led by an increase in 'non-revolving credit' which is mainly student debt.
Last week also saw September non-farm payrolls data released. The US unemployment rate fell to 3.5%, which is great and is the lowest since December 1969. However, this was accompanied by a stall in average hourly earnings and wage growth. In other words, more people are employed, but their wages aren't growing.
This slower wage growth will not only contain inflation pressures, but it leaves room for the Federal Open Market Committee (FOMC) to ease monetary policy. In other words, - things aren't getting more expensive due to inflation and the central bank of America may decrease interest rates. The resulting downward adjustment to US interest rate expectations has limited the USD's strength.
Reserve Banks around the world are looking at easing monetary policy. Just last week the Reserve Bank of Australia decreased interest rates by 25 basis points to 0.75%. It is clear the global economy is feeling the strain and burden of trying to keep another global recession at bay.
The Bank for International Settlements (BIS) is essentially the Reserve Bank for the Reserve Banks and recently did a report into the response of central banks around the world to the previous Global Financial Crises. The report details a few things:
- They are concerned about the current state of the global economy
- Interest rates will stay lower for longer
- The decision of Reserve Banks to use "unconventional monetary policy" to boost economies during the last GFC prevented it from becoming a much more deep-seated economic downturn. These unconventional methods included things such as negative interest rates and the creation of money to buy government bonds.
- Should the Reserve Banks choose to use these unconventional means again, they must be implemented in conjunction with a broader set of government policies. In other words, the government can't just rely on the bank to fix things in the economy.
There has been word of the Reserve Bank of Australia potentially dropping interest rates into negative territory should our economy not pick up where necessary. If you are planning a trip in the next year or so (and if you aren't I would question why not - holiday's are essential!), it is worth keeping an eye on how Aussie interest rates move as it will have an impact on the value of the AUD.
Brexit
Negotiations between the UK and EU continue to take place in Brussels today. It seems the EU wants Boris Johnson to present a new and improved offer ahead of next week's EU leaders summit.
If a deal can't be reached by then, the Brexit date is likely to be delayed from October 31 to January 31 2020. If this is the case, a general election is expected to be held in November.
Despite all of this, leaving the EU on October 31 without a deal is still not 100% out of the picture. This prospect, coupled with the continued ebbs and flows in Brexit news, is weighing heavily on the value of the pound.
We will no doubt have more information on the success of these negotiations in our Friday update.
Looking at the day ahead, markets will pay close attention to the NAB business confidence survey for September.
In the meantime, I'm off to get some garlic bread. The real question here is - pineapple or no pineapple on my pizza? Now that's a negotiation that will never end.
This blog is provided for information only and does not take into consideration your objectives, financial situation or needs. You should consider whether the information and suggestions contained in any blog entry are appropriate for you, having regard to your own objectives, financial situation and needs. While we take reasonable care in providing the blog, we give no warranties or representations that it is complete or accurate, or is appropriate for you. We are not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information and/or suggestions contained in this blog. All rates are quoted from the Travel Money Oz website and are valid as of October 8 2019. Terms and conditions apply to Rate Move Guarantee.
