The Australian dollar fell against the US dollar on Monday afternoon amid a lowered global growth forecast from the IMF and on a day of thinner trading while US markets were closed for the Martin Luther King Jr. Day holiday.
AUD/USD was lower by 11 pips (-0.16%) to 0.6863 with a daily price range of 0.686 to 0.689 as of 2.30pm GMT, sending the currency pair to fresh 5-day lows and close to its lowest year-to-date.
The bushfires in Australia were cited as one of the reasons for the downgrade to global GDP in 2020 alongside a bigger than expected slowdown in India, social unrest in Hong Kong and hurricanes in the Caribbean. The bushfires are a massive environmental disaster for Australia but the report from the IMF today underscored the economic problems they will also pose for Australia. Additionally, as one of the world’s largest raw material exporters, Australia’s economy trends to track the performance of the global economy.
The new report, forecasting a slightly slower pace of growth in 2020 was released on the eve of the Davos conference in Switzerland. The revisions now mean that the IMF forecasts global growth will rise from an estimated 2.9% in 2019 to 3.3% in 2020, down from the 3.4% forecast last time.
The IMF also downgraded expected growth in the United States in 2020 to 2.0% from 2.1% previously. One would expect the downgrade to have been much stronger were the phase one US China trade deal not recently completed. However the IMF did specifically reference the risk of the US taking on other economic rivals. Specifically saying:
“Further deterioration in economic relations between the US and its trading partners (seen, for example, in frictions between the United States and the European Union), or in trade ties involving other countries, could undermine the nascent bottoming out of global manufacturing and trade, leading global growth to fall short of the baseline.”
Forex market liquidity has been sparser on the MLK holiday and no US economic data is being released, keeping movements in the dollar limited.