Australian Dollar (AUD) Yo-Yo’s Following Second Devaluation of Chinese Currency

The Australian Dollar tumbled mid-morning yesterday when the Chinese authorities devalued the Yuan for a second day in a row, this time by 1.6%.

When the People’s Bank of China described Tuesday’s devaluation of the Yuan by 1.9% as “a one-off move”, perhaps they meant for that day only. The AUD responded to the news by falling over a full percent against a basket of currencies before rebounding overnight to make all the ground back.

Yesterday Westpac Consumer Confidence and Wage Cost Index figures were released out of the Australian economy and indicated an increase to Consumer Confidence, with a printed figure of 7.8% from the previous -3.2%. The annualised Wage Cost Index remained at 2.3%. The data was not enough to provide a rise to the ‘Aussie’ (AUD) which remained stagnant after the release, before falling heavily as a result of China devaluing their currency.

The Chinese economic data released yesterday afternoon in the form of Retail Sales and Industrial Production were poorer than expected, coming in at 6.0% and 10.5% respectively from the forecast of 6.6% and 10.6%. The Chinese data continued to weigh down the Australian Dollar.

Today the Australian Consumer Inflation Expectation figure will be announced at 11:00 AEST. The final influencing factor of the value of the Australia Dollar (AUD) this week will occur tomorrow when the Assistant Governor of the Reserve Bank of Australia (RBA), Christopher Kent, makes a speech on labour market developments at an Economic Society of Australia luncheon tomorrow.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Hits New 6 Year Low Before Experiencing Massive Rebound

The AUD/USD exchange rate hit a fresh 6 year low following on from the unexpected second devaluation of the Chinese currency yesterday. The AUD/USD hit 0.7214 after falling over a full percent during the Wednesday Australian trading session.

The next movement of the AUD/USD exchange rate will be determined by the Australian economic data today and the release of Advance Retail Sales in the US this evening. The forecast is for US Advance Retail Sales to have grown by 0.6% for the month of July, from the negative previous month reading of -0.3%.

Industrial Production, Manufacturing Production and the University of Michigan Confidence figures will round out this week’s data. With expectations being a slight improvement to all three economic indicators, we may see the AUD/USD exchange rate move back towards the new year lows ahead of the weekend.

The AUD/USD exchange rate was trading at 0.7377 at 0800 AEST.

Australian Dollar to Pound Sterling (AUD/GBP) Exchange Rate Plummets Then Recovers

Overnight the UK employment conditions were at the focal point of economists and investors. The employment data proved to be worse than expected with the employment change being -63K and the UK Unemployment rate remaining at 5.6%. Average Weekly Earnings were expected to fall from 3.2% to a relatively healthy 2.8%; however this figure dropped to 2.4%.

The AUD/GBP exchange rate recovered all the ground it lost during the Australian trading session yesterday and then proceeded to push up by a further three quarters of a percent overnight.

Construction Output of the UK will be released tomorrow evening and is expected to grow by 3.3%, potentially adding strength to the ‘Sterling’ and putting continued downward pressure on the AUD/GBP exchange rate.

The AUD/GBP exchange rate was trading at 0.4725 at 0800 AEST.

Terry Finn