US Dollar Reaches One Year Low

The steady march upwards continued overnight with the Dow Jones taking out the 22,000 level. The index actually opened above 22,000 and then chopped around for the rest of the session to close near the opening level. The ASX has been lagging the US market with the ASX200 staying within a narrow sideways range since early June. With earnings season upon us, market moves will be largely driven by company results over the next few weeks.     

Last Tuesday's RBA meeting put significant focus on the current strength of the Australian dollar. The AUD is currently trading just below US$0.80, a level last reached back in early 2015. While Australians tend to view it as AUD strength, the truth is that it is more a case of USD weakness. The US dollar index (DXY) (a measure of the US dollar against a basket of currencies) has been falling since the beginning of the year and is now at an over one-year low. Since January 3, DXY is down approximately 9% which makes it the worst start to the year for the US dollar since 1985. DXY closed down again overnight, making a new low for this move.

Today Australia releases its trade balance data with another surplus expected although somewhat less of a surplus than May. A surplus for June would represent the 8th month of surplus in a row. This largely results from an improvement in coal and iron ore prices that has improved our terms of trade.  National Australia Bank (NAB) note that the import of a large floating LNG platform from Korea for the Ichthys LNG project could appear in the trade balance any month now and cause a significant boost to the value of imports. The could potentially negatively affect the trade balance for the month in which it is counted.

Also today, the Bank of England makes it rate decision for the month although it is expected to keep rates on hold. Notwithstanding this, the expectation of a rate hike in the near future is increasing as the prior meeting saw a 5-3 vote to keep rates unchanged. This indicated that at least three of the eight policymakers are ready to raise rates.   

       

Data Releases:

–    Australia Trade Balance 11:30am AEST

–    UK Official Interest Rate 9:00pm AEST

–    US ISM Non-Manufacturing PMI 12:00am AEST

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This article was written by William O'Loughlin – Local Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.