Worries over the outlook of the global economy have returned to plague markets after a particularly disappointing raft of Chinese trade data prompted a sharp decline in risk appetite.
After the latest Australian Construction PMI fell further into contraction territory at 46.1 the ‘Aussie’ (AUD) saw a sharp slump against rivals. This weaker showing somewhat undermined recent optimism in the strength of the domestic economy, with a decline in Foreign Reserves also giving investors little reason to favour the antipodean currency at the start of the week.
While the February Non-Farm Payrolls report had softened the US Dollar (USD) ahead of the weekend, with a strong increase in jobs counterbalanced by weak wage growth, the ‘Greenback’ began to recover some of its lost strength on Monday. Despite disappointing Labour Market Conditions and Consumer Credit figures, the US Dollar was boosted by the increasing jitteriness of global markets.
China’s latest raft of trade data provided markets with fresh cause for concern on Tuesday as imports and exports declined markedly more than traders had been anticipating. Particularly bearish was the -25.4% drop in exports on the year, although some economists have suggested that the weakness of the figure was in part to do with an unusually strong February performance in 2015 and disruptions around the Lunar New Year holiday. Nevertheless, this discouraging reminder of the increasingly fragile state of the world’s second largest economy prompted a fresh round of risk aversion that has pushed the Australian Dollar lower against rivals.
The Australian Dollar to US Dollar (AUD/USD) exchange rate recovered some ground on the back of the NFIB Small Business Optimism Index, which showed an unexpected drop in confidence within the US economy. However, as safe-haven demand continues to bolster the US Dollar the pairing has failed to hold onto its gains towards the close of Tuesday’s European session.
Later today the Westpac Consumer Confidence Index could offer a rallying point for the ‘Aussie’, providing that sentiment continues to show signs of improvement amidst an increasing atmosphere of global uncertainty. Should confidence fail to strengthen, the antipodean currency is expected to retreat further across the board, particularly if January’s Home Loans figure demonstrates weakness.
Confidence in the US Dollar may increase on the back of the January Wholesale Inventories report if it implies a greater level of consumer demand, with a further decline in inventories offering a fresh sign of strength within the US economy. While the Fed remains unlikely to move on interest rates imminently the ‘Greenback’ should be expected to remain on relatively bullish form as market sentiment deteriorates.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate was slumped around 0.7444, while the US Dollar to Australian Dollar (USD/AUD) pairing was making gains in the region of 1.3431.
Disclaimer: Currency-Converter.com.au and its data provider, TorFX, make no claims regarding the validity or exactness of the information provided in on this site and will not be held liable for any use, interpretation, or other implementation of the information provided. Currency-converter.com.au make no warranties, express or implied, as to results to be obtained from use of such information, and make no express or implied warranties of condition, quality, performance, merchantability or fitness for a particular purpose or use. Currency-converter.com.au shall not have any liability for the accuracy of the information contained in the services provided or ommissions there in which are made available on a free, as-is basis. None of the aforementioned parties shall be liable for any third party claims or losses of any nature, including, but not limited to, lost profits, punitive, consequential, special, incidental, indirect or similar damages even if advised of the possibility of such damages. Rates offered are interbank rates and may not be the same as offered by your financial institution, and do not include commissions. Rates shown on this site will vary from those provided by TorFX or other providers linked to from this site.