The Australian dollar, US dollar exchange rate has had a choppy week as the pair responds to the two steps forward one step back nature of the US – China trade deal headlines. The pair was trending lower on Friday, down 0.4% at the time of writing, pulling US$0.6850 into sight.
The Australian dollar (a G7 proxy for China) shrugged off a better than expected trade balance data from China on Friday. China’s trade surplus widened to $42.81 billion in October, ahead of the $40.1 billion that analysts had pencilled in. Imports fell 6.4% year on year in US dollar terms, whilst exports fell 0.9% in US dollar terms but rose in CNY terms.
Whilst the trade surplus increased, dismal import numbers are a cause for concern, indicating a weakening domestic demand. This is increasing fears of a deeper economic slowdown in the world’s second largest economy, which is weighing on demand for the Australian dollar.
Also hitting the mood for the Aussie dollar was the Reserve Bank of Australia’s monetary policy statement. The RBA has pushed back its timeline for lifting inflation to the target level of 2-3%. This means that the central bank is also pushing back the date when interest rates could start to rise again, dragging the value of the Australian dollar lower. There is no more Australian data due today. Trade headlines could drive the Australian dollar towards the weekend.
Will US Consumer Sentiment Boost US Dollar?
The dollar was on the front foot on Friday as investors digested the latest twist and turns in US – China trade headlines. Both sides have agreed to roll back already imposed tariffs at different phases of the trade deal. However, today the headlines were slightly more negative suggesting that there were still some issues to be ironed out before the phase one trade deal would be signed.
Dollar investors will now look ahead to the University of Michigan consumer sentiment report. Analysts are forecasting that sentiment increased in November to 95.9, up from 95.5 in October, as sentiment continues its recovery. Improved sentiment is being underpinned by a strong labour market and solid wage growth. Analysts are not expecting to see the impact of improved US – Sino relations reflected in the data yet. A strong reading could boost the dollar. This is because confident consumers spend more which boosts the economy and adds inflationary pressures.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 USD = 0.6784 AUD
Here, $1 is equivalent to approximately A$0.67. This specifically measures the US dollar’s worth against the Australian dollar. If the Aussie dollar amount increases in this pairing, it’s positive for the US dollar.
Or, if you were looking at it the other way around:
1 AUD = 1.4739 USD
In this example, A$1 is equivalent to approximately $1.47. This measures the Australian dollar’s worth versus the US Dollar. If the US dollar number gets larger, it’s good news for the Aussie dollar.