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Australian dollar: between decline and rise

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The current year was not easy for the Australian currency. It had to survive a three-fold reduction in interest rates by the Reserve Bank of Australia (RBA), to experience pressure from disappointing economic data and global trade tensions. As a result, the situation in the Australian economy is far from stable, experts emphasize.

The currency of the Green Continent, like the country's economy, is between two fires. It balances between attempts to rise and a steady decline. In many ways, this is due to the drop in Australia's GDP growth rates. In 2019, this indicator was steadily decreasing - from 3.4% to 1.4%, reaching the lowest level in the last 6 years. In quarterly terms, the country's GDP growth declined to 0.4% against the expected 0.5%.

Earlier this month, the RBA decided to keep rates unchanged at an extremely low level of 0.75%. This led to the strengthening of the Australian dollar, experts emphasize. Another factor in strengthening the position of the Aussi was the improvement of economic data for China. At the same time, a pair of AUD/USD was helped by criticism of US President Donald Trump regarding the strong dollar, analysts say. The interim truce in the trade conflict between Washington and Beijing, as well as the rejection of the threat of Trump raising tariffs on Chinese goods, were favorable for the "Australian."

On the other hand, fears about a further slowdown in the economy of the Green Continent make the RBA keep abreast to change the situation with interest rates at any time. Experts record a decline in consumer demand in the Australian economy. This is an important factor, since personal consumption accounts for about 60% of GDP. In the event of a drop in personal consumption, hiring in the labor market will stop, and the investment market will be in jeopardy.

However, the regulator is in no hurry with a further reduction in rates despite unfavorable forecasts. The authorities of the Green Continent believe that forcing events can lead to excessive stimulation of the economy. At the same time, the RBA is ready to cut rates if necessary, the department notes.

According to experts, the Australian economy is dominated by conflicting impulses. On the one hand, it slows down, and on the other, it is close to a state of stable equilibrium. Moreover, stabilization of the Australian economy is facilitated by factors such as a trade agreement between the US and China and the results of previous rate cuts. Earlier, Philip Lowe, the manager of the RBA, announced a turning point in the country's economy, emphasizing that the effective lower limit for rates is 0.25%.

As we can see, the current situation negatively affects the currency of the Green Continent. On Tuesday, December 17, the pair AUD/USD broke through the key short-term support level of 0.6860 and rushed down. In case of breaking through another important support level - 0.6833 - the pair will return to the global downward trend, in which it has been since August 2011.

On Wednesday, December 18, the AUD/USD pair is trading in the range of 0.6855–0.6856, sometimes dropping even lower. However, it is still far from the level of 0.6833, experts say. Nevertheless, they are afraid of the subsequent subsidence of the pair and the final departure of AUD / USD in a downward spiral.

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According to experts, further easing of the monetary policy of the RBA will put downward pressure on the Aussie. At the same time, analysts are sure that commodity currencies, which include the Australian dollar, will be under attack in case of difficulties in the second-phase trade negotiations between the US and China.

The material has been provided by InstaForex Company - www.instaforex.com