The Australian dollar exchange rate has fallen by around 40 percent in recent months. However, the RBA Assistant Governor assessed that there was a positive side. If calculated according to the trade-weighted basis, the Australian Dollar exchange rate has fallen by around 40 percent in recent months. However, the Reserve Bank of Australia (RBA) officials said this is not entirely bad. In a forex conference in Melbourne this morning (15/February), RBA Assistant Governor Christopher Kent revealed that the recent weakening of the Australian Dollar has helped the domestic economy in a certain margin.
Weakening of the Australian Dollar and Economic Outlook
In his presentation, Christopher Kent discussed the causes of weakening of the exchange rate, the projected effects, and various other economic outlook. According to him, the recent depreciation of the Australian Dollar has worsened because the market takes into account the possibility of a larger interest rate cut, so that bond yields weaken. According to Kent's note, Australia's 2-year bond yield has a tendency to weaken the most compared to other major currency bonds. "Some of the changes are automatic, because Japan's and the Euro area's interest rate policies are almost close to the lower limit of effectiveness (implying that yields fall in line with global trends).
However, Kent assessed while the exchange rate has remained within a relatively narrow range in recent years, recent depreciation has helped in certain margins, because there is unused capacity in the economy, and inflation is still below the target. Kent reviewed the recent RBA forecast for economic growth and inflation. He also agreed on the general view of the RBA which expects unemployment to decline gradually. This will lead to increased salary growth, although only gradually, and inflation is also expected to gradually increase.
Postpone Deadline for US-China Negotiations
The Australian dollar soared around 1 percent after it was reported that US President Donald Trump showed a softer attitude in US-China negotiations. Almost every positive news related to trade negotiations between the United States and China has an impact on the Australian Dollar. The correlation was seen again in the Asian session this morning (13/February).
The Australian dollar soared around 1 percent after it was reported that US President Donald Trump showed a softer attitude in the negotiations. The AUD/USD currency pair briefly shot up to a one-week high in the range of 0.7136, before slipping back when entering the European session. This morning, market participants witnessed an increase in expectations for a trade agreement between the two largest economies in the world, or at least a delay in the increase in US import tariffs on Chinese products. This happened in connection with the latest comments from President Trump.
What Trump said
Trump dismissed White House advisor Kellyanne Conway's statement earlier, hinting that he would meet with President Xi Jinping before the March 1 China-China negotiation deadline. However, he indicated his willingness to postpone the deadline. He said if we are close to an agreement and it will be realized, he can let it back down a little. He doesn’t want to delay.
Responding to Trump's comments, interest in market risk surged to the point of pressing the US Dollar exchange rate and pushing the value of riskier assets higher, Including Australian Dollars. As David de Garis, a NAB Economist, told Australian Business Insider this morning, market sentiment has shot up in the past 24 hours due to some good news in US-China trade negotiations.
Meanwhile, improvements in Australian consumer sentiment also underpinned the AUD/USD rally on a more limited scale. Find the updated news as well as classes to analyze fundamental aspects like this through Didimax, a platform where you can learning forex. You can learn forex from their free materials or directly with their reliable mentors.
