In recent months the Australian dollar has been one of the major benefactors of the current global economic climate, seeing the currency surge in value against most of its major counterparts and this has seen some excellent opportunities for AUD sellers to take advantage of. Yesterday however, there was a significant correction in Australian dollar value, seeing AUD exchange rates plummet by as much as 1% against the pound, euro and US dollar.
Investor Flight to Safe Haven Currencies on Stock Market Correction Weakens AUD
Much of this AUD strength has been down to how well the country has controlled the spread of the Coronavirus and an increased risk sentiment from traders. However, a correction in the stock markets at the beginning of this week, which saw the Nasdaq close at records highs on Monday, has led to a flight to safety for investors. As such historically ‘safe-haven’ currencies such as USD, CHF and JPY have benefited and strengthened against AUD. Yesterday however, markets did begin to tail of slightly as investors eyes are now fixed on the latest Federal Reserve (Fed) policy meeting this evening.
Whilst no major policy decisions or change in interest rates from their record lows are expected from the Fed this evening, this will be a key event to watch out for concerning any clients with an AUD currency requirement as this will be the first time this year that the Fed will issue economic projections for this year. US economic data showed signs of improving at the end of last week, with stronger employment data released on Friday for June.
If this bullish tone is matched in the Fed’s announcement this evening, then AUD could continue to fall against USD. Ahead of the Fed announcement this evening there are also inflation figures from the US this afternoon which could have an impact on USD exchange rates. It is expected that inflation will fall month on month (MoM), and this could cause USD volatility.
How Will Australia-China Tensions Affect AUD Rates?
Back on Australian soil, the tensions between Australia and China have continued to rumble on and this could cause underlying weakness for AUD going forward due to the economic ramifications of this in the future. The tensions started after Australia proposed an inquiry into China’s role in the outbreak of the Coronavirus pandemic and China have responded with various tariffs on Australian goods.
The war of words escalated further yesterday, after China warned international students that they may face racism in Australia if they choose to return to study there. The education ministry in China urged prospective students to “conduct a good risk assessment and be cautious about choosing to go to Australia or return to Australia to study”.
This warning from China could be extremely damaging to the Australian economy if heeded, as around 10% of University students in Australia are from China and make up around A$12bn in fees each year. Since the announcement the Australian dollar weakened in yesterday’s trading and it is certainly worth any clients with an AUD requirement keeping a close eye on how these tensions are managed moving forwards.
GBP Could Continue to Fall Against AUD
Similarly to AUDUSD movement, the pound has also seen a surge in value against the Aussie this week, after months of significant losses. If you have an impending GBPAUD currency transfer it may be worth speaking with one of our experienced traders to find out how you can take advantage of this spike.
There is still underlying weakness for the UK economy and therefore the pound, with the economy likely to face longer lasting ramifications from the current pandemic. Yesterday for example, it was announced that 1 in 4 UK workers is currently on the government’s furlough scheme, which has so far cost almost £20bn. In fact, recent figures from the Office of Budget Responsibility show that they expect the government’s efforts to battle the virus will end up costing over £120bn.
Friday could be a key day this week for GBPAUD exchange rates, with a raft of data set to be released that could create market volatility. From 07:00 there are industrial and manufacturing production figure released along with trade balance data and GDP forecasts for April. These figures are likely to give a very strong indication of how the UK economy has fared during the crisis and lockdown measures. It is likely that these numbers will portray a stark outlook and therefore we could see GBP weakness.
To discuss these factors in more detail, and find out how they could impact your upcoming Australian dollar currency exchange, get in touch using the form below. I’l be happy to get in touch personally and discuss your enquiry.