Sterling gained in value versus the Australian dollar on the interbank market this week, partly because YouGov’s opinion polls point to a Conservative victory at next month’s UK vote, which would grant the UK a stable government.
However, the Australian dollar has weakened this week, both because Australia’s wages rose less than forecast over the Summer, and because unemployment Down Under increased in October.
This signals greater weakness in Australia’s economy, and may prompt the Reserve Bank of Australia (RBA) to further cut interest rates, in early 2020. Were the RBA to do so, we’d historically expect this to influence the value of the Australian dollar.
According to the Australian Bureau of Statistics (ABS) this week, Australia’s joblessness rose by 0.1% last month, to 5.3%. This is further away from the RBA’s informal target of 4.5%, so tells us that there’s growing slack in Australia’s job market.
In particular, Australia shed 19,000 jobs in October, well below economists’ predictions for a 15,000 gain in positions, and September’s 12,500 increase.
What’s more, this week we learnt that Australia’s wages rose by just 2.2% in Q3, over the Summer, below forecasts for 2.3% and the slowest pace in over a year.
When Australia’s joblessness rises, this may slow economic growth Down Under, thus weakening the Australian dollar.
What with Australia’s unemployment rate rising, it’s now thought more likely that Australia’s central bank will cut interest rates below their current 0.75%, early next year.
After all, what with more Australians unemployed, this suggests that Australia needs greater monetary support, in spite of the fact that the RBA has already cut borrowing costs three times in 2019, from 1.5%.
If the RBA cuts interest rates next year, this will take Australia’s monetary policy down to a new all-time low, simultaneously making investing in Australian financial assets less profitable. Traditionally, this tends to weaken the value of the AUD, so could be worth watching for.
Meanwhile, next week’s key Australian economic data includes the minutes of the RBA’s latest interest rate decision, on Tuesday 19th, and Australia’s composite PMI for this month, next Thursday 21st. Both these releases could impact the AUD.
The Australian dollar was on the back foot this week, as Australia’s economic growth disappointed in Q3, from July to September. As a result, the Reserve Bank of Australia looks increasingly set to cut interest rates further in 2020.
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