The Australian dollar (AUD) rebounded in May, recovering lost ground against the greenback following the release of strong retail and manufacturing data from China, which pushed commodity prices higher.
The AUD also benefited from the welcome news that US President Donald Trump’s steel and aluminium tariffs would not apply to Australia.
As we have entered June, the AUD has broken above 0.76, which is an important level. If it can hold above here, history would support a move higher.
However, in order for the AUD to push higher we would need to see some positive GDP data – due later this week – and a change in the rhetoric from the Reserve Bank of Australia on the outlook for cash rates, which remain at a historic low of 1.5%.
In recent months we have seen very similar statements coming from the RBA and the market will be closely watching for any changes.
The ‘Italy’ issue
Globally, the crisis eventuating in Italy has been grabbing headlines for all the wrong reasons. There have been predictions that if Italy leaves the EU, there will be implications for Australia, which is heavily reliant on Europe for debt funding.
In AFEX’s view, however, much of the commentary has been overblown and the global economy is now too strong for an Italian exit from the EU to cause any lasting damage.
Businesses, both here and overseas, usually react to any significant changes in the AUD’s buying power.
For importers, the current trading environment is creating opportunities to sell the AUD into rallies and get funds squared away. Conversely, many exporters we deal with are costed at 0.75 and may want to look at some optionality in their hedging strategies.
Consult the experts
The currency markets are full of risks and opportunities for trading SMEs. Managing these risks and trying to predict market movements can be complex and a distraction from day-to-day business activity.
It’s best to consult with a foreign exchange provider throughout the year who understands your industry and can provide relevant currency market insights and analysis, as well as gauge what market shocks may be around the corner.
James Swerling is Account Manager at AFEX, a global payment and risk management solutions provider