The Australian economy has been struggling of late and has caused the Australian dollar to weaken against a basket of major currencies including the US dollar and the euro over the course of the last month.
|Currency Pair||% Change (Month)||Difference on £200,000|
One of the main causes for concern for the Australian economy is that economic growth has slowed below the rate of population growth, and economic growth is pivotal to keeping unemployment rates from rising. The current rate of unemployment is at 5% which is far too high, and this is reflected in the current poor wage growth levels.
Another issue the Australian economy is facing is that the housing market is also struggling, with house prices continuing to fall, although at a slower rate than in 2018, and house sales numbers are also falling. The number of properties changing hands has fallen by 20% compared to in 2015.
This all comes at a time when the Australian public are due to take to the polls to elect their next Prime Minister on 18th May, and whoever wins the electoral race is likely to face a difficult challenge ahead to get the economy back on track. This will be the seventh leadership change in 12 years. Since 2007 there hasn’t been a single leader to serve a full term, however due to rule changes within the Labor and Liberal-National Parties, the next Prime Minister elected will be required to serve a full term which should help to offer stability at a time when it is needed most. Any political changes such as an election can cause market volatility, and clients who are exposed to Australian dollar exchange rate movements could benefit from putting a plan in place for any upcoming currency transfers.
Overnight last night the Reserve Bank of Australia released their Monetary Policy Statement, following from Tuesday’s Interest Rate decision meeting which saw rates being held at 1.5%. However the central bank suggested that it would consider cutting interest rates if unemployment levels remain at the current highs. The weak housing market has prompted the bank to downgrade growth and inflation forecasts, a stark comparison to November when the RBA were hopeful that the economy would grow at 3.3% this year. The new forecasts are expecting growth to come in at around 2.75%.
Looking ahead to next week, key data releases which could impact Australian dollar exchange rates include Home Loans and Investment Lending for Homes data which are both released in the early hours of Monday morning. Bearing in mind the current struggles with the Australian housing market, and the focus the RBA is putting on data releases such as these, expectation is for a fall in these figures which could see the Australian dollar weaken. Consumer Confidence figures and Wage Price Index will then be released on Wednesday morning, and if these follow the recent negative trend we could see the Australian dollar weaken further.
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