As a fresh trading week opens, the market looks to the Reserve Bank of Australia as they prepare to announce their interest rate decision on Tuesday 4th February. The Australian central bank’s interest rate decision comes a week after a hectic decision that was made by the UK’s Bank of England (BoE) which ultimately saw them keep their cash rate the same at 0.75%. But the build-up to the decision was not clear-cut and saw the pound drop as investors flocked to safe havens currencies amidst jitters of a rate cut. The scenario could be similar for the Australian dollar as they prepare for much of the same. Therefore, markets are expecting volatility for the Australian dollar in the week ahead leading up to the decision.
Negativity in the Global Headlines Applies Further Pressure to the Australian Dollar
The Australian dollar has had its fair share of bad news in recent weeks which has impacted its economy. Most substantial of all has been the coronavirus which continues to spread throughout the world, now reaching Europe. The outbreak of the virus caused havoc for the currency as it is a highly risk-sensitive currency which relies on the markets risk appetite. However, with the virus being declared a global health emergency by the World Health Organisation (WHO), investors risk appetite has sharply decreased as they expect the virus to impact the Chinese economy as the disease looks to show no signs of slowing down.
Added to this, the Chinese economic figures continued their monthly slump last week which drained AUD of its weekly efforts as trading ceased for the weekend. The Chinese manufacturing PMI decreased which added pressure to the China-sensitive currency. As the second-largest economies manufacturing numbers take a tumble, the global trade sentiment also is likely to depreciate. This fall is likely due to the spread of the virus and the impact it has had on the Chinese economy.
Volatility Expected for AUD as the UK Pursues Brexit Negotiations
With the RBA set to announce their interest rate decision this Tuesday, markets are expecting volatility that could mirror last week’s GBP performance for the Aussie dollar. Monday and Tuesday morning will likely see AUD take a step down as investors begin their pre-meeting jitters. However, forecasts predict that the RBA is unlikely to change their monetary policy but any dovish signals about the economic outlook could dampen the mood around AUD and see it drop even with a steady rate. Meanwhile, the UK looks to begin its Brexit negotiations with the EU. The two must agree a trade deal by December 2020 to ensure that the UK does not leave without a deal. February will mark the start of the negotiations and volatility is expected to hit GBP once more as news surrounding Brexit unfolds.
If you’re considering buying or selling Australian dollars and would like to compare rates or know more about the factors that could impact your exchange rate, feel free to contact me directly, I look forward to hearing from you.