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Australian Dollar Strongest, Rising for Fourth Session

February 6, 2020 at 6:10 by Vladimir Vyun

Reverend John Flynn on Australian 20-dollar billThe Australian dollar was the strongest currency on the Forex market today, rallying for the fourth consecutive day thanks to the improving investors’ sentiment. The currency managed to rally even though domestic macroeconomic data failed to meet expectations for the most part.

The Wuhan coronavirus continues to spread as the number of confirmed cases in China climbed by 3,694 to 28,018, while the death toll increased by 73 to 563. Yet it looks like investors hope that the measures to contain the virus will prevent further spread of the infection. As a result, markets were trading in a risk-on mode.

As for macroeconomic data, the Australian Bureau of Statistics reported that retail sales fell 0.5% in December from November on a seasonally adjusted basis versus the forecast decline of just 0.2%. On a positive side, the previous month’s gain got a small upward revision from 0.9% to 1.0%. The trade balance surplus shrank to A$5.22 billion in December from A$5.52 billion in November instead of rising to A$5.65 billion as analysts had predicted.

According to a report from National Australia Bank, the business conditions improved from +2 to +4 in December, while the business confidence was unchanged at -1. Alan Oster, NAB Group Chief Economist, commented on the result:

It appears that business conditions have stabilised edging 3pts higher over the past two quarters. While they remain positive, they have declined significantly over the past 18 months or so.

Business confidence was unchanged but is still negative. Essentially, firms are telling us that they don’t expect a material improvement in activity going forward.

Goldman Sachs had a positive outlook for monetary policy of the Reserve Bank of Australia, predicting no interest rate cuts in 2020:

Absent a steady rise in the unemployment rate over a couple of months (not our base case), rates on hold in 2020 now looks to us the most likely scenario — particularly given Governor Lowe’s renewed concerns around low rates, house prices & financial stability.

It was in contrast to the forecast from Westpac Banking Corporation, which envisioned two rate cuts throughout the year.

AUD/USD rallied from 0.6746 to 0.6760 as of 6:09 GMT today. EUR/AUD dropped from 1.6301 to 1.6267. AUD/JPY gained from 74.08 to 74.33.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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