The Australian dollar slipped lower versus the US dollar on Monday. The pair lost 0.5% in the previous session, closing at US$0.6773. The Australian dollar US dollar exchange rate pared those losses on Tuesday hitting a high of US$0.6766, before moving lower once again.
The Australian dollar recovered losses from the first trading day on the week. The Aussie initially moved higher on Tuesday on optimism that the Australian economy could be slowly turning a corner. The National Bank of Australia reported an improvement in business conditions. Whilst business conditions and confidence remain below average levels, the negative trend appears to be bottoming out.
|Why does strong economic data boost a country’s currency?|
|Solid economic indicators point to a strong economy. Strong economies have strong currencies because institutions look to invest in countries where growth prospects are high. These institutions require local currency to invest in the country, thus increasing demand and pushing up the money’s worth. So, when a country or region has good economic news, the value of the currency tends to rise.|
Today’s data, plus better than expected retail sales earlier in the week support comments by Reserve Bank of Australia’s Governor Dr Philip Lowe’s last week, that the Australian economy was reaching a “gentle turning point”.
Investors will now turn their attention to Australian consumer confidence figures which will be released later. Investors watch consumer sentiment levels closely because confident consumers tend to spend more, boosting the economy and inflationary pressures.
Weak Data, Trade Woes & Fed Powell Up Next
The US dollar spent the early part of the session under moderate selling pressure as weak data increased concerns over the health of the US economy.
US small business optimism fell to nearly the lowest level since Trump became President. The National Federation of Independent Business’ optimism index dropped 1.3 points to 101.8 in September. This is the third time that it has declined in four months.
US producer price index, which measures inflation at factory level also printed below expectations. Today’s data add to signs that the US economy is cooling, although not quite yet slipping into recession.
Despite the weak data, the dollar gained traction as trading progressed, as investors sought the greenback for its safe haven qualities. A report that the White House is moving towards restrictions on investments in China is undercutting any investor optimism ahead of the US – China trade talks restarting on Thursday.
Investors will now look ahead to a speech by Federal Reserve Chair Jerome Powell for further clues as to what the central bank intends to do with monetary policy in light of the slowing economy.
|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.