By guest contributor Stuart Talman, Director of Australian Sales, XE.com
The Australia dollar was poleaxed last week, falling to its lowest level in a month and logging a 2.40% decline for the week.
The surge in risk sentiment that was delivered via positive trade talks between Trump and Xi the week prior evaporated as doubts arose that any meaningful outcomes would follow. US-China relations were further strained on the news that Meng Wanzhou, Huawei’s global CFO was arrested in Canada due to allegations that she covered up Huawei’s link to a firm that tried to sell equipment to Iran.
China has warned that there will be severe consequences if it does not immediately release Wanzhou who was arrested by Canadian authorities at the request of the United States and now awaits the outcome of her extradition (to the US) hearing.
Last week also produced a number of other factors that lead to the AUD being the worst performing major currency, among these a steep decline in US equities, and locally – the weak GDP release and speech from assistant RBA Governor, Guy Debelle.
Speaking at the Australia Business Economists Annual Dinner, Debelle’s speech garnered attention due to his comments regarding the outlook for interest rates. And whilst the guidance remains that same – that is the next move in rates will likely be higher, he did make comments regarding a change in circumstances warranting a shifty in policy. “There is still scope for further reductions in the policy rate.”
Following on the heels of Wednesday’s weak GDP result, the softening in tone from the RBA and the continuing slide on house prices – the market is pricing in, albeit a very small probability of the RBA cutting rates next year.