The Australian Dollar was higher overnight as the Reserve Bank of Australia (RBA) kept its Official Cash interest rate on hold at 0.75%.
The decision to keep rates on hold was widely expected by analysts, however recent developments made sure that policy makers had a wider set of criteria to consider when making the decision.
Employment Figures Removed Some Bushfire Uncertainty
The exchange rate has been rising since the late-December lows near 1.8600 at the onset of the bushfire crisis. Another reason for the drop was a softening of the Brexit stalemate, where the UK and the European Union are now ready to sit around the table and discuss a trade deal.
Analysts were pricing in just a 20 per cent chance that interest rates would fall despite the disruption of the recent bushfire crisis in Australia. Any fears over the negative effects to the economy were removed as the most recent jobs figures showed a small decline in unemployment. For the month of December, 29,000 jobs were added, although that was entirely due to part-time opportunities. The data ensured that the RBA did not see any major red flags ahead of its recent rates decision and saw the expectations of a rate cut fall from around 50% in late-January to around 20% before the monetary policy announcement.
China’s Coronavirus Problem Is the Next Risk for Markets
The next risk for global markets and the Australian dollar forecast is the recent Coronavirus epidemic in China. Debate is mixed over the official figures for the virus as it has spread into other areas such as Hong Kong. Medical workers in the country were on strike for a second day amidst demands that leader Carrie Lam closes the city’s border with the mainland to halt the spread of the virus.
There are now over 20,000 confirmed cases in China, with another 154 outside China, bringing the total global count to over 20,500. The mortality rate of the virus is still not predictable and the key risk for the Australian dollar following the RBA decision is an escalation in Coronavirus cases. The value of Australia’s currency is widely tied to the health of the Chinese economy and the recent virus outbreak is a negative development for the trade partnership between the two countries.
If you’re considering buying or selling Australian dollars and would like to compare rates or know more about the factors that could impact your exchange rate, feel free to contact me directly, I look forward to hearing from you.