Australian dollar monthly review is below – thanks.
Don’t put all your eggs in one basket, as the saying goes. In recent months the Australian economy has been learning this the hard way. Since Black Monday last August, however, Australia has been forced to diversify its trade partners away from its reliance on China, and such efforts finally appear to be bearing fruit. Good news that manifested itself in the form of positive balance of trade data, which showed exports rising and imports falling, and stronger-than-expected quarterly growth of 0.6% in Q4 2015 – dispelling much of the recent anxiety over performance following disparaging economic data releases from Beijing. Consequently the Aussie was the strongest performer amongst the major currencies in the early part of the month; picking up from where it left off at the end of February.
With Australian economic statistics thin on the ground the Aussie benefitted from news elsewhere: data showing a decline in American hourly wages aided its cause against the US dollar, before it strengthened against the pound, after the Bank of England governor told parliament that Britain's exit from the European Union poses "the biggest domestic risk to financial stability". It initially lost ground to the euro when the European Central Bank announced lower interest rates and increased stimulus at their March policy meeting, but soon rallied when they informed the waiting media that ‘we don’t anticipate that it will be necessary to reduce rates further’.
The Aussies recent strong run was temporarily undone by its own central bank following the release of the minutes from their most recent policy meeting, which hinted – not for the first time in recent months – that current inflation issues could lead to a cut in the Cash Rate. The repetitive nature of this rhetoric meant that losses were far from severe.
The Aussie managed to regain its footing thanks to America’s Federal Reserve, who implied that only two rate increases are now on the cards this year, rather than the four that were previously mentioned. Good news for all the commodity-related currencies.
It wasn’t long, however, before a combination of factors caused investors to take flight from the supposedly risky commodity-related currencies, in favour of those perceived as offering a safe haven. In an about turn the Fed wheeled out a series of regional presidents who spoke publicly of a possible rate increase in April, before the horrifying terrorist attacks in Belgium instigated a move towards risk-aversion. Having lost ground to the US dollar as a result, the Aussie managed to strengthen against sterling in the wake of the Brussels bombings, which were perceived as a catalyst to sway people toward voting to leave the EU in June – a potential scenario that has been putting the pound under significant downward pressure in 2016.
Just a few days later, and in stark contrast to her hawkish subordinates, Fed chairperson Janet Yellen spoke of global risks to the U.S. economy – including low oil prices and uncertainty over China – justifying a cautious approach to tightening monetary policy. The previous rhetoric around imminent rate hikes was soon forgotten and the Aussie subsequently gained one and a half US cents and added two thirds of a cent against sterling. For the year to date it is 5% higher against the US dollar and 8% higher against sterling.
Data emanating from China has been positive in the first quarter of this year, with Chinese firms announcing that $113bn has been spent on overseas deals so far – already just $8bn off of the total for 2015. China’s resurgence coupled with improving commodity prices has boosted the Australian economy, and this is reflected by the strength of the Aussie dollar against a basket of major currencies.