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Monthly Wrap: AUD – Australian dollar driven lower as economic outlook worsens

Philip McHugh June 7th 2019 - 2 minute read

Key Takeaways:

  • Reserve Bank of Australia cuts interest rates, analysts predict more rate cuts ahead
  • Growth misses the mark as global trade and economic slowdown fears worsen
  • AUD Monthly highs: £0.55, $0.70, €0.62, C$0.94, NZ$1.06
  • AUD Monthly lows: £0.52, $0.68, €0.61, C$0.92, NZ$1.05

At the beginning of May, expectations that the Reserve Bank of Australia (RBA) would cut interest rates soon surged. This led to steep losses in the Australian dollar for the first half of May.
Since then, the ‘aussie’s’ movement has steadied slightly, being more influenced by the strength of rival currencies and global trade sentiment as US trade protectionism fears returned full force.
This is despite the fact that the economic outlook has continued to worsen throughout the past month with little in the way of domestic news that supports a more bullish outlook.
Data has been consistently concerning, painting a picture of uncertainty for the resilience of the domestic economy. The recent general election ultimately had little impact on the economic outlook, although concerns about stability in the ruling coalition remain.
Trade tensions between the US and China ramped up once again, with the US now threatening potential tariffs on other trade partners, including Australia.
On top of this, GDP growth data published in the past week revealed that Australia’s economy grew at a slower pace than expected during the first quarter.
With the economy still showing signs of slowing and concerns of global trade tensions worsening, investors were not convinced by the relatively optimistic tone the RBA took when it cut interest rates.
Analysts still expect the RBA will cut interest rates again over the next year, potentially several times.
These factors have kept the Australian Dollar from advancing lately, but with interest rate cuts already priced into the currency, some investors are buying it back from its lows too.
Notably, recent weakness in the US dollar (USD) on Federal Reserve interest rate cut bets helped AUD/USD to recover much of its May losses already, despite concerns about Australia’s economy.
With investors still betting on lower interest rates, AUD investors will remain focused on major Australian data releases over the coming month.
The RBA continued to play up the importance of the domestic job market as a sign of economic health, so employment data due in the middle of the month could prove influential.
The bank’s meeting minutes due later in the month will also be influential if they show more caution or dovishness than its policy statement did.
Then, towards the end of the month and into July, the June PMIs, as well as the next RBA policy decision and trade balance report, will give investors a better idea of how the economy is performing.

Written by
Philip McHugh

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