Sterling strengthened versus the Australian dollar on the interbank market earlier this week, yet lost some of its gains later on. Partly, this is because the world’s investors hope that the UK economy will accelerate in 2020, following last month’s election in which the Conservatives won an 80-seat majority.
However, turning Down Under, Australia’s economy could pick up this year, in particular following November’s unexpected rise in job creation.
In turn, this could encourage the Reserve Bank of Australia (RBA) to keep interest rates steady, rather than cut them, while the US/China trade truce might strengthen Australia’s Gross Domestic Product (GDP) growth this year too.
In November of 2019, the amount of new jobs created was released at 29,000, which far exceeded the expectation of 14,000. This helped cut Australia’s unemployment rate by 0.1%, down to 5.2%.
As a result, the RBA could be less likely to cut Australia’s interest rates below their current 0.75% in the immediate future, already their all-time low. Instead, RBA Governor Philip Lowe and his team might keep borrowing costs steady, to examine the impact of the Central Bank’s three interest rate cuts last year, on Australia’s economy. In turn, higher interest rates traditionally support the Australian dollar.
Moreover, the Australian dollar might also be impacted in 2020 by the US/China “first phase” trade truce. Later this month, Washington and Beijing are set to formally sign a reprieve to their 18-month trade war and cut their tariffs on each other’s economies.
However, given that Australia trades closely with both America and China, a trade truce could also benefit the economy Down Under.
In particular, when economic growth in the USA and China improves, businesses in these two countries are likelier to buy Australia’s exports, thereby improving Australia’s GDP growth too. So the trade truce could be worth watching for, and its effect on both Australia’s economy and the AUD.
Turning to next week, key economic data includes Australia’s trade balance for November, due on Thursday 9th, and November’s retail sales, released on Friday 10th.
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