Aussie Tries to Recover as Business Confidence Improves

The Australian dollar gained a little today after the Australian business confidence improved. Gains were limited, though, as the data was not particularly great and risk aversion continued to weigh on riskier currencies. In fact, the Australian currency has lost gains against most of its rivals by now.
National Australia Bank reported that the business confidence improved to +4 in July from +2 in June. But the business conditions demonstrated exactly opposite performance, falling from +4 to +2. Overall, the report was rather pessimistic, stating:

We’re seeing below average confidence and conditions. The picture remains unchanged since last month – business sector has lost significant momentum since early 2018 and forward looking indicators don’t point to an improvement in the near term.

Christopher Kent, Assistant Governor at the Reserve Bank of Australia, delivered a speech today. In it, he mentioned that lower interest rates led to a depreciation of the Aussie despite rising commodity prices:

Despite that support, the Australian dollar had depreciated over that period when commodity prices had been rising. That implies that the effect of monetary policy on the exchange rate has been broadly working as usual. As I mentioned before, there has been a noticeable decline in Australian interest rates relative to those of major advanced economies. At a two-year horizon, this interest rate differential has declined by about 100 basis points over the past year. This lower return on Australian assets would no doubt have contributed to a decline in the value of the Australian dollar.

AUD/USD edged up from 0.6749 to 0.6760 as of 12:27 GMT today but retreated from the daily high of 0.6774. EUR/AUD was at 1.6591 after opening at 1.6605 and falling to the daily low of 1.6526. AUD/JPY traded at about 71.14 after rallying from 71.07 to 71.37.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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