The Australian dollar was lower against the US dollar on Thursday afternoon with global markets returning to a more defensive stance as the coronavirus outbreak in China disrupts global activity. Traders were favouring the safety of haven currencies including the dollar over riskier currencies, particularly those with close economic ties to China like the Aussie.
AUD/USD was lower by 39 pips (-0.57%) to 0.6713 with a daily price range of 0.671 to 0.676 as of 3pm GMT. It was a steady decline in the exchange rate throughout the day which was extended in the afternoon when US markets opened.
The Australian dollar has been grouped alongside multiple Asian currencies including the Korean Won and Thai Baht, which were all lower against the dollar on Thursday. The Asian region is coming under pressure as foreign investors pull out their money for fear that the China coronavirus will dampen growth and investment returns.
A mixed set of economic data releases in the United States on Thursday were unable to knock the dollar off its perch. The advanced estimate for US fourth quarter GDP growth was 2.1% year-over-year, in line with prior estimates. It demonstrates the resilience of the US economy versus other parts of the word, especially Europe but it marks a slowdown in growth from the same period in 2018.
Personal Consumption Expenditures, an indication of spending closely watched by the Federal Reserve came in well below expectations at 1.3% year-over-year when consensus forecasts were for a smaller fall to 1.7% from 2.1% previously. It is a bad omen for the preferred inflation gauge of the Federal Reserve released tomorrow (the Core PCE Price Index).
The Federal Reserve decided yesterday to maintain interest rates at the existing 1.50-1.75% range. This was expected but the official statement from Jerome Powell seemed to imply the Fed’s bias to resume its rate hikes a later stage was beginning to change over fears about stubbornly low inflation. Specifically Powell said, “We’re not satisfied with inflation running below 2%, particularly at a time such as now where we’re a long way into an expansion.”
