By James Hughes Chief Market Strategist at AxiCorp Financial
By James Hughes Chief Market Strategist at AxiCorp Financial

Headwinds impact Australian Dollar

There are huge headwinds causing the Australian dollar to remain under pressure over recent weeks, all of which show no signs of changing in the short term. Add the major economic headwinds to the upcoming federal election, and the uncertainty this causes and you can understand why the Aussie is finding it hard to cling on to any of the recent rallies. The Australian Dollar had a slightly more positive start to the month despite a decidedly negative start for global stock markets which would typically be met with sharp declines in the Aussie currency. Global markets have fallen into the red on concerns that the U.S.-China trade war may re-escalate.

First Published: e-Forex Magazine 86 / Currency Clips / May 2019

There are huge headwinds causing the Australian dollar to remain under pressure over recent weeks, all of which show no signs of changing in the short term. Add the major economic headwinds to the upcoming federal election, and the uncertainty this causes and you can understand why the Aussie is finding it hard to cling on to any of the recent rallies.  The Australian Dollar had a slightly more positive start to the month despite a decidedly negative start for global stock markets which would typically be met with sharp declines in the Aussie currency. Global markets have fallen into the red on concerns that the U.S.-China trade war may re-escalate.

Until now, the mood on trade talks had been positive with growing expectations for a deal to be struck within days. However, U.S. President Donald Trump criticised China for dragging out the trade negotiations and that the U.S. will increase the tariff rate on $US 200 billion of imports from China from 10% to 25% on Friday.

The Aussie Dollar tends to fall in such ‘risk off’ conditions, while safe-havens such as the Yen tend to benefit.  But looking at the currency markets, the Australian and New Zealand Dollar’s appear to be holding out suggesting the response function of these two currencies to global sentiment might have faded.

Domestically

Domestically the story is a little different, with election uncertainty as well as the RBA looking at a shift in policy. The housing market is clearly the key talking point when it comes to Australian financial markets and the RBA at the moment. The slowdown of the major aspect of the two speed economy in Australia is also going to be a key worry for the electorate in the coming weeks.

There is a feeling that the RBA have this situation under control, with rumors that we could see payments return to households with a helicopter money strategy taken by the central bank. This has been done before with 900 buck payments to households, but with the global growth picture, and the domestic housing market there are worries that an aggressive form of policy could leave the Aussie exposed.