The Australian dollar was one of the weakest currencies on the Forex market today, driven down by risk aversion caused by increasing geopolitical tensions between the United States and China. Domestic macro releases were decent but that did not provide the currency much help.
US President Donald Trump wants to step up the tech war with China by banning TikTok and WeChat, apps owned by Chinese companies. Markets are cautious, waiting for a response from Beijing to this move. The risk-averse sentiment hurt risky commodity currencies, the Australian dollar being one of them.
As for news from Australia itself, the Australian Industry Group Australian Performance of Services Index rose from 31.5 in June to 44.0 points in July. The reading below 50.0 indicates that the industry continued to contract, albeit with slower pace.
The Reserve Bank of Australia released its Monetary Policy Statement today. The notes revealed that the central bank does not plan interventions in the currency market:
The Board concluded that, at a time when the value of the Australian dollar is broadly in line with its fundamentals and the market was working well, there was not a case for intervention in the foreign exchange market. Intervention in such circumstances is likely to have limited effectiveness.
The likelihood of negative interest rates was also extremely low:
The Board continues to view negative interest rates as being extraordinary unlikely in Australia. The main potential benefit is downward pressure on the exchange rate. But negative rates come with costs too. They can cause stresses in the financial system that are harmful to the supply of credit, and they can encourage people to save rather than spend.
AUD/USD fell from 0.7234 to 0.7206 as of 11:59 GMT today. EUR/AUD fell from 1.6412 to 1.6397, retreating from the daily high of 1.6441. AUD/JPY was down from 76.35 to 76.13.
If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.
