The Australian dollar prices plunged from the level of 0.7296 USD (Day’s high on 31st January 2019) to the level of 0.7003 (Day’s low on 8th March 2019), shunning away all the gains from the starting of the year 2019. The fall in the Australian dollar was mainly due to the array of sparse data and the economic condition of the country.
The nation’s economic activity of the country was reported to be sluggish in the last quarter of 2018 amid high-interest rate and a contraction in credit coupled with the soaring inflation and lower consumer confidence. The credit crunch in the economy was marked by the significant fall in the Home Loans.
The number of new loans granted for the owner-occupied homes declined on a monthly basis by 6.1% for December 2018 as compared to the market expectation of a decline by 2.0%.
The soaring inflation can be inferred by the rise in Melbourne Institute Inflation expectation index. The index rose to 3.7% for January 2019, as compared to 3.5% in December 2018. The data itself did not suggest any significant change in inflation; however, combined with the falling Wage Price Index it indicated the damping consumer sentiments. The Wage Index declined to 0.5% for the quarter ended 31st December 2018 as compared to the market expectation of 0.6%.
The weakness in the economic condition of the country exerted the pressure on Australian dollar prices, and it lost its early gain, which was seen at the beginning of the year 2019.
The Reserve Bank of Australia (RBA) is still holding the interest rate despite the falling housing prices, which was noticed by the fall in Housing Price Index. The Housing Price Index (weighted average across the nation’s eight capital cities) fell 2.4% for the quarter ended 31st December 2018, as compared to the market expectation of a decline by 1.9%. The Housing Price Index (HPI) also marked an annual drop of 5.1% from the Q4 of 2017 to Q4 2018.
The RBA is waiting for a resolution to minimize the spread between the falling wages and higher employment to change the credit conditions, the higher employment is reflected by a higher private expenditure and a higher employment data.
The Employment data for January 2019 was at 39.1k, which marked a significant increase from the market expectation of 15.2k. The Private Capital expenditure surged to 2.0% for the quarter ended 31st December 2018 as compared to the market expectation of 0.8%.
The higher private spending and higher employment supported the AUD prices and the currency recovered from the level of U$0.7003 (Day’s Low on 8th March) to the level of U$0.7121 (Day’s high on 18th March) before losing again to the falling housing price marked by a fall in HPI.
The economic condition of the country is sluggish and is estimated to increase provided visible betterment in credit crunch occurs gradually. In late February, President Mauricio Macri announced to grant U$ 2.6 billion in loans to private companies at a favorable interest rate to curb the ongoing credit crunch in the economy.
To further gauge the direction of the Australian dollar prices, the market participants are eyeing the RBA stance for a required interest rate hike and the reduction of spillover from the U.S-China trade war.
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