The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
- Optimistic RBA and improved risk sentiment drives up the ‘Aussie’
- Could souring China-Australia relations weigh on AUD?
- AUD Monthly lows: £0.55, €0.63, $0.75, C$0.97, NZ$1.05
- AUD Monthly highs: £0.56, €0.65, $0.80, C$0.99, NZ$1.08
The Australian Dollar performed relatively strongly this month after the Reserve Bank of Australia (RBA) held its interest rate at 0.1%, with the RBA also noting that Australia’s economy was recovering above expected levels.
RBA Governor Philip Lowe maintained his wait-and-see approach to the Australian economy, saying that the board ‘will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.’
AUD exchange rates have fluctuated on shifting risk appetite driven by news around US President Joe Biden’s enormous $1.9 trillion coronavirus stimulus programme.
Over the last month confidence has grown in the US stimulus plan, buoying demand for risk-sensitive currencies like the ‘Aussie’.
Additionally, falling Covid-19 infection rates worldwide and widespread efforts to rollout vaccines have also contributed to positive risk sentiment.
However, a dip in risk appetite at the end of February caused the Australian Dollar to give up some of its gains.
The start of March also saw the release of Australia’s latest GDP figure for the fourth quarter of 2020. The figure beat forecasts and rose by 3.1%, buoying confidence in Australia’s coronavirus-ravaged economy.
Australia’s Treasurer Josh Frydenberg expressed confidence in the economy, saying that this was ‘the first time in recorded history that Australia has seen two consecutive quarters of economic growth of more than 3%.’
Australia has also benefited from the government’s drive to immunise the public from Covid-19 with a robust vaccination programme.
Looking ahead, AUD investors will be monitoring Australia’s consumer confidence and unemployment levels.
Any marked improvement in employment and consumer morale could further drive-up the Australian Dollar exchange rate.
US stimulus news will also dictate ‘Aussie’ movement in the weeks to come.
If the US Senate approves Joe Biden’s historic stimulus plan, then global market mood would improve and boost the risk-sensitive AUD.
However, if relations between China and Australia show signs of souring after it was revealed that Chinese investment in Australia had plummeted by 61%, then AUD would suffer.
China is Australia’s largest trading partner, so any signs of tensions between China – the world’s second-largest economy – and Australia would therefore be AUD-negative.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)