In Australia, and for the Australian dollar the focus has been on the RBA’s decision to keep interest rates unchanged. The central bank did much as expected by keeping the official interest rate at 0.10%. The RBA also announced no change to its asset purchase program as it adopts a wait and see approach to the economy, and developments with COVID 19.
The Australian dollar fell slightly as the Reserve Bank of Australia prepared for its monetary policy meeting. However, it gained slightly after the announcement and downbeat statements on the economy in the US, by Treasury Secretary Mnuchin who called for a further $455bn stimulus to avoid further economic hardship. Meanwhile Federal Reserve Chairman Powell has suggested the economic recovery is losing momentum.
In the longer term, at least, things are looking reasonably good for the Australian dollar. The decision to keep interest rates steady comes on the back of better than expected economic news.
Yesterday’s release of the ANZ business confidence index saw a significant jump to -6.9 from -15.7 in October. Retail confidence and services confidence also rose 17.9 pts and 10.2 pts to -3.8 and -6.6 respectively. Manufacturing confidence surged 14.5 pts and turned positive to 6.7.
In addition to good manufacturing and non manufacturing PMI numbers from China the landscape is beginning to look promising for the AUD in 2021. Even so, the economy remains in a fragile state. Australia has benefited so far from what is perceived to be effective measures against a second COVID 19 wave.
However, the landscape remains fragile. Analysts are still waiting to see how the path of the virus unfolds as well as developments with the various vaccines undergoing trials. Friction with China also weigh on sentiment.
Gains Against GBP
Analysts are bearish on the British pound’s prospects against the Australian dollar in 2021 with some forecasting steep declines throughout the year. A Brexit deal, they say, will not be enough to prevent the economy moving into a decline.
Even with a deal, Britain will be taking a dual economic hit from COVID 19 and Brexit which could mean 2021 is tougher in the UK than elsewhere.
On COVID 19 the dollar is supported by the apparently successful efforts to curb a second wave. However, it is dragged back by trade tensions with China.
Even so, HSBC has high expectations of for the dollar.
“We continue to expect the AUD and NZD, for example, to appreciate against the US dollar. The AUD still looks cheap relative to its terms of trade and is well placed to capitalise on mainland China’s economic recovery, politics notwithstanding,” said Paul Mackel, Head of FX Research at HSBC.
The message of the day from Australia remains on of cautious optimism. Economic data looks good and the outlook for 2021 appears promising. Even so lingering uncertainties surrounding COVID, the global economy and trade keep most experts cautious.
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