The Australian dollar was always looking like it may struggle in the month of May, and so it has proved to be the case. A series of domestic and global events have all led to increased pressure on the Australian currency, as investors fear over the more immediate political and economic outlook.
On the side of the domestic issues facing Australia, there are numerous economic concerns including inflation being at a 16-year low with stagnating Unemployment a further concern. The Reserve Bank of Australia (RBA) has because of this been under pressure to cut interest rates and it is widely expected will cut at future meetings.
The raising and lowering of interest rates is a big factor in the strength and weakness of a currency, the current projection for lower interest rates down under will only serve to put more pressure on the currency in the future.
Politics is also key in Australia with the national elections due on the 18th May, there is a concern this could be a Labour government which would potentially see the Australian currency weaker. There has been a growing concern over the economic outlook and a Labour government and their spending plans could easily see a weaker currency.
Finally, the global events which are also concerns for the Australian dollar are numerous. This includes the trade wars between the US and China which could see the lack of any agreement weighing on global sentiment and hamper trade confidence in the global economy. As a global currency, the Australian dollar will weaken in times of uncertainty over the global economic outlook and the trade wars are a great example of this.
Moving forward, the Australian dollar looks like it will remain under some pressure and could easily weaken further. A sudden change in sentiment could easily develop however, and clients looking to predict and track movements on this currency should be aware of the potential for a sudden reversal.
To discuss strategy and ensure that you are fully up to date with the latest trends and themes in the market, please don’t hesitate to contact me Jonathan Watson to discuss further on [email protected].
Thank you for reading and I look forward to hearing from you.