Australian Dollar Logs Gains, Analysts Skeptical

The Australian dollar logged gains against the majority of other most-traded currencies today. Market analysts explained gains of riskier commodity currencies by the rise of European stocks due to the preliminary trade agreement between the United States and China. Experts were skeptical, though, about the longevity of the gains as the US-China trade conflict is not over yet, and there are other reasons to worry, like the threat of hard Brexit and impeachment of US President Donald Trump. This week’s domestic macroeconomic data was not especially helpful to the Australian currency either.
The Westpac–Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, fell from –0.78% in October to â€“0.81% in November. Westpac Chief Economist Bill Evans commented on the result:

The Leading Index growth rate has now been below trend for the last twelve months and continues to point to weak economic momentum carrying well into 2020.

This signal from the Index is certainly consistent with Westpac’s own growth forecasts. We expect GDP growth in 2020 to be stuck at 2.1% which compares with trend growth of 2.75%.That modest growth pace reflects a flat consumer; further contraction in residential construction and disappointing business investment.

The Conference Board Leading Economic Index for Australia increased 0.2% in October after rising at the same rate in the previous month.
The Commonwealth Bank Flash Manufacturing PMI fell to 49.4 in December from 49.9 in November, while the Commonwealth Bank Flash Services PMI fell to 49.5 from 49.7. The decline of the indices, which were already below the neutral 50.0 level of no-growth, means that both the manufacturing and services industries were contracting with an accelerating pace.
Going forward, Australian employment data due for release at 00:30 GMT during the Asian session should have a big impact on the Aussie.
AUD/USD was at 0.6854 as of 17:10 GMT today, near the opening level of 0.6850. EUR/AUD dropped from 1.6268 to 1.6213. AUD/JPY rose slightly from 75.01 to 75.10.

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