Australian Dollar (AUD) Continues to Remain Vulnerable to Further Downward Movement

Today the Reserve Bank of Australia (RBA) will issue a Statement on Monetary Policy at 10:30 AEST. The RBA made the decision on Tuesday to cut interest rates by 25 basis points to 2.25% after remaining on hold for the past 18 months.

The monetary policy statement will provide an insight into the timeframe and intention of any additional future rate cuts by the governing body. The Australian Dollar is likely to be volatile during the release and further weakness to it’s’ value can be expected if the RBA suggest an additional cut in the near future.

Yesterday the Australian Dollar (AUD) remained relatively stable in comparison to the major swings we have seen over the past couple of days. Overnight the AUD had mixed movements, advancing against the USD by approximately half of one percent and falling against the other majors.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Recovers Slightly

The AUD/USD exchange rate has been trending downward for the past couple of months now, moving down by approximately a whopping 10% over the past 10 weeks. It did manage to recover slightly overnight though,

The US economy reported on their Trade balance overnight, with the result being -$46.6B, much worse than the forecast of -$38.0B. This allowed the AUD/USD exchange rate to recover by over half of one percent and move away from the 5 and half year low we saw earlier in the week.

Tonight the US will report on their employment conditions. Currently, the US Unemployment Rate is sitting at 5.6% and the forecast is for no change to this figure. Approximately 230K jobs are expected to have been added to the US economy for the month of January.

The ‘Aussie’ (AUD) remains vulnerable to further declines against the ‘Greenback’ (USD) as the US economy recovers; and Australian monetary policy and commodity prices place continued pressure on the AUD.

Australian Dollar to Pound Sterling (AUD/GBP) Exchange Rate Trading Around a 5 and Half Year Low

The AUD/GBP exchange rate hit a fresh 5 and half year low following on from the RBA rate cut in Australia and is continuing to trade around this level.

The Bank of England (BoE) rate Decision was announced last night and there was no surprise that rates were kept on hold at 0.5% after 2 of the 9 Policy Makers indicated last month that they had reversed their vote to raise interest rates, favouring now to keep them on hold. Interest rates are likely to be kept on hold until at least after Britain’s general election in May due to deflation concerns.

Australian Dollar to Canadian Dollar (AUD/CAD) Exchange Rate Continues to Oscillate

The AUD/CAD exchange rate has continued it’s’ tussle over the past week, just shy of the parity mark with recent strength favouring the Canadian Dollar.

The RBA’s decision to follow suit with the Bank of Canada, with a surprise cut to interest rates by 25 basis points, drove down the AUD/CAD exchange rate by approximately 2% on Tuesday. The ‘Aussie’ (AUD) rebounded against the ‘Loonie’ (CAD) recovering by over a full percent over the next couple of days. Currently the AUD/CAD exchange rate is trading around the 0.97 mark.

This evening Canada will report on employment economic indicators. The Canadian Unemployment Rate is expected to remain unchanged at 6.7% with a modest 5K jobs forecast to have been added to the economy for the month of January. The AUD/CAD exchange rate is likely to fall should oil prices begin to lift, as the Canadian Dollar is closely tied to the movements of this commodity.

Terry Finn