Currency Update 9th August by Send Payments - Ian Cragg
THE EXPATRIATE International Currency Update by our Specialist Ian Cragg from Send Payments.
The AUD had a mixed week against major currencies. It started the week on a strong note with the RBA hiking rates by 50bps. However, market sentiment quickly shifted and the AUD fell after it was clear that the RBA was moving to a more dovish policy stance. This was compounded by a strong USD, which led to a flight to safety and away from risk currencies like the AUD.
AUD - USD
The AUD USD pair had a mixed performance this week. The AUD started the week on a high note against the USD but then lost 1.14% of its value over the week. This downtrend ended the last two weeks of good performance shown by the AUD, which was already on the cards.
One reason for the increase in USD value has been geo-political uncertainty in Europe and the latest show-off between US and China. However, the main driver of USD value this week has been the positive jobs data in the US. The US economy added 528000 jobs, making the unemployment rate fall to 3.5% and tightening the labor market. This report made the treasury rates jump up on bets that FED will continue its hawkish policy to achieve its targets.
The RBA has also been slightly hawkish over the week, making a firm commitment to tackle inflation by any means necessary. Although bigger rate hikes seem to be off the chart for the next two quarters.
AUD could not capitalize on this because of the rebounding USD. The same goes for other risk-leveraged currencies, which have suddenly lost steam because investors are flocking to the USD.
At this point, it is hard to say what the exact risk sentiment is in the market. Investors are watching the US-China showoff but there is no visible panic in the market. For now, the markets are hyped up on the stronger-than-expected economic indicators in the USA, which seem to give a signal that a recession may be off the cards. In our opinion, it is too early to say that.
The AUD is bearish for now and technical indicators are also showing that the market sentiment is to sell the AUD against the rebounding USD.
AUD - GBP
The AUD-GBP pairing had a modest week against the fundamentally weak GBP. The week started with the RBA going for a 50 bps rate hike. In theory, this should have given the AUD a boost but in reality, it saw the AUD drop 1.47% in value, soon after the announcement.
The main driver behind this movement was the dovish stance of the RBA for future rate hikes. While the RBA is committed to controlling inflation, the low unemployment rate and strong fundamentals have for the time being eliminated the need for 50bps or higher rate hikes. The markets were quick to pick this up and wiped out any positive effect of the RBA rate hike.
Later in the week, BoE came out with a 50 bps rate hike, which is the biggest in the last 27 years. The governor painted a very bleak picture for the British economy with the next five quarters forecasted to be recessionary.
The doom and gloom painted by the BoE late in the week, helped the AUD recover further. For next week, we can expect the AUD-GBP pairing to be relatively stable as both currencies face headwinds. The GBP will continue to be weighed down by economic woes and uncertainty, while the AUD could be affected by the rebounding USD. Technical indicators show that the market sentiment is to buy the GBP against the AUD.
AUD - NZD
The AUD - NZD pairing lost almost 0.31% of its value last week after the RBA rate hike. The market was quick to dismiss this rate hike, after assessing that the RBA is shifting down to a more dovish policy for the next few quarters. This pushed AUD down against the NZD.
The other main driver for this movement has been the weak performance of the Aussie dollar against the USD. The USD has been on a tear lately after some strong economic data pushed up treasury rates. This has led to a flight to safety towards the USD and away from risk currencies like the AUD and NZD.
In the short term, based on technical analysis, the market favors buying sentiment for the AUD against NZD for the next week.
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