The Australian Dollar has faded further from Fridays 5-month highs as speculators took profits on recent gains. Added to this, the bushfires which have wreaked havoc across the whole of Australia continues to burn which is causing untold strain on both the population and wildlife as well as the economy. Recent news broke Friday that the US had confirmed airstrikes on an Iranian military official, this caused the AUD to drop as the safe-haven Yen also fell.
Bushfires Weigh on the Australian Economy
The bushfires in Australia continue to rage on, destroying everything it its path. Australian residents, and wildlife have suffered to the fires. The emergency response from the Australian services has been widespread but the effect of the support needed to attempt to manage the fires is costly, and thus the Aussie economy has taken a hit. Added to this, the tourism sector for Australia has taken a hit amongst the news of the fires as many residents are evacuated from their houses. Chief economist at AMP Capital, Shane Oliver warned that the seemingly never-ending bushfires are another drag on the struggling Aussie economy.
Investors Worry for the Australian Economies Ability to Recover as Markets Still Anticipate RBA Rate Cut in the First Quarter of the Year
The Aussie economy is facing tough times as the market worries that it may struggle to recover from its current state. Apart from the current issues with the bushfires, Australia has struggled with the household sector being the worst performer last year as sluggish wage growth weighed on confidence. Concerns have arisen as a combination of three interest rate cuts from the Reserve Bank of Australia (RBA), a round of tax rebates and a revival in housing prices have not been enough to resuscitate retail sales.
In the lead up to the end of 2019, rumours suggested that the RBA was likely to cut their interest rates in the first quarter of 2020. Since then, the bets have reduced in probability but still sit around a 58% chance of a quarter cut into the 0.75% rate in March. Investors will be hoping that the RBA will not be performing any further cuts as the AUD could suffer in strength should that be the case. But with the ongoing bushfires adding pressure to the economy as it hits a negative state, it looks like the weight will mount on the RBA as the weeks unfold.
GBP News Dominated by the UK-EU Trade Discussions
For the GBP, the news is surrounding the ongoing Brexit talks and whether the UK and EU can come to an agreement. Michael Brown, currency expert at Caxton FX mentioned that the UK has lost ground as the new year got underway. With the UK already being hit with poor manufacturing PMIs on Thursday, investors will be hoping for positive revelations from the Brexit talks. Any positive news would give the GBP a boost as fears reduce of a no-deal Brexit occurrence.
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