Please note that the commentary below is factual information provided to a group of readers as a web blog, and where an opinion is expressed by the author, it is GENERAL ADVICE only.
The Aussie Dollar has continued to drift lower over the course of the week as a result of limited risk appetite globally and slowing growth at home. Local data this week has shown slower construction spending, weak private capital expenditure while new home sales have continued to dropped off a cliff with a 7.2% decline in July, which followed the more than 12% decline in June. All the data is pointing to lower interest rates from the RBA and even stimulus in the form of quantitative easing (money printing) or helicopter money as we saw from Kevin Rudd in 07 when he paid us all about 700 bucks to offset the negative impacts of the GFC.
Lower Interest Rates:
Why this means a lower AUD is reasonably simple, but it can be best summarised that lower interest rates reduce the attractiveness of investing in a particular currency. Higher interest rates obviously are the opposite and attract investment in a particular currency. At the moment Australia has lower interest rates than in the U.S hence why investors would choose to keep their currency holdings in USD as opposed to AUD. We’re continuing to see AUD/USD selling pressure precisely because of this scenario.
The RBA meet again next week and in likelihood following the shitty data we’ve seen this week we could see another rate cut, however it’s not yet being priced in. Importers should remain cautious and book Forward Contracts on any low margin imports. I’ll write more on this Monday and Tuesday.
AUD EXCHANGE RATES:
AUD/USD – 0.6703
AUD/GBP – 0.5492
AUD/EUR – 0.6054
AUD/NZD – 1.0615
AUD/JPY – 71.366
All Ords (XAO) – 6,605
Gold – A$2,269/oz
Silver – A$27.12/oz
WTI – US$55.49/barrel
DATA RELEASES TODAY:
AUD – Building Approvals m/m at 11.30am
CNY – Manufacturing PMI at 11.00am (tomorrow morning)
Sign up for a Compass account today and access some of the most competitive rates in the business and arguably the best service.
Senior Corporate FX Dealer
Phone Patrick – 0431 278 632
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