AUD / USD rebounded, as China's exports increased rapidly in March 2019, thus helping to improve sentiment for the Australian Dollar. Market risk sentiment had a slight improvement after Chinese exports in the March trade balance reported exceeding expectations. The improvement in risk interest managed to push AUD / USD up around 0.2 percent to reach the range of 0.7140, although the Aussie had slumped.
Factors That Affected The Decline
Yesterday, a number of factors affected the decline of the Australian Dollar from the highest level a month. Among other things the sluggish domestic inflation estimates and the announcement of plans for holding the federal election on May 18 2019. The electability of the incumbent Liberal-National coalition PM Scott Morrison has fallen sharply in recent times, until the results of the latest survey indicate that opposition groups are more dominate.
Interest in the risk of market players recovering given the still far away time of holding the election, as well as in connection with the release of the latest China trade balance data. The Chinese government reported that imports were recorded at -7.6 percent (Year-on-Year) in March, worse than the initial estimate.
However, exports jumped up by 14.2 percent (Year-on-Year) in the same period, or almost twice as high as the initial estimate of only 7.3 percent. The overall trade balance also experienced a surplus from 4.08 billion to 32.65 billion. Despite the positive economic data of Australia's main trading partners, the condition of domestic housing is still quite alarming.
In a financial stability review report released earlier this morning, the Australian central bank warned that if property prices fall deeper, it could give birth to a "negative equity" situation in which the number of loan mortgage owners will be much higher than the value of their property. Fortunately, the RBA will likely not make any interest rate changes ahead of the upcoming May 18 federal election.
Australian Dollar Rises Again, Rated Still Undervalued
The Australian dollar strengthened again, in line with the moderation of market concerns. In addition, the Aussie position is presumably still below its fair value. The Australian dollar strengthened 0.2 percent to 0.7125 against the US dollar in early European trading session, while AUD / NZD climbed 0.3 percent to 1.0322. Strengthening is likely supported by technical factors and reduced market concerns.
Previously, changes in the formation of US bond yield curves resulted in an escalation of concerns about a slowdown in the world economy, which weighed on market risk. However, now an important indicator that measures market concern has slipped back.
Investors Remain Optimistic
The release of a number of disappointing US economic data on Friday has triggered a phenomenal change in the formation of the US yield curve. Short-term bond yields increase, while long-term bond yields decline. As a result, the spread between US 3-month bond yields and 10-year bond yields entered negative territory. In fact, the reversal of the bond yield curve is seen as one of the leading indicators for the economic recession in Uncle Sam's country.
Concerns about the recession triggered a flight of funds from the US dollar, but did not push up demand for safe haven currencies such as the yen and franc significantly. The majority of investors and traders still seem to be optimistic about the future economic outlook. Although the major central bank is expected to take a dovish pose, the recession is expected to be avoided.
The VIX, or CBOE Volatility Index, is an index that measures expectations of stock market volatility as implied by the S & P500 index trading options. VIX is often used as a barometer of market risk interest, because stock market volatility often increases when panic occurs. The VIX has jumped almost 3 points to 16.48 on Friday, rallied again to 17.43 on Monday.
