The Australian dollar fell sharply on Thursday morning, adding to across-the-board losses on Wednesday, as negative economic data from China easily beat positive Australian data in the game for greatest influence, and as iron ore fell to $55 per ton in the NYMEX futures market.
As of 03:30 GMT on Thursday, the Australian dollar sits on its session lows at 1.0454 against the New Zealand dollar (its lowest since early February), 0.6567 against the euro (its lowest in almost a year), and 0.7386 against the US dollar.
Today should have been far better for the Aussie. At 01:30 GMT investors saw the release of data for both Australian retails sales and private capital expenditure, both of which rebounded from disappointing prior readings and might normally have sparked an Australian dollar rally. Retail sales for April came in at 1.0%, way up on March’s fall of 0.2% and better than the market forecast for 0.3%, and private capital expenditure rose 0.3% in Q1, rebounding strongly from a fall of 1.0% in Q4.
Upon those releases, the Australian dollar did jump, but only momentarily. A 30 pip (0.4%) gain against the US dollar was erased and Australia’s currency was smacked back down, with interest, when just 15-minutes later Caixin released their Chinese manufacturing PMI number.
The PMI – a composite indicator designed to provide a single-figure snapshot of conditions in China’s manufacturing sector – fell to 49.6 in May from 50.3 in April, and posted its first fall below the neutral 50.0 value in 11-months. Values below 50.0 indicate that the manufacturing sector is in decline.
Within an hour of the Caixin release, the Australian dollar had fallen by almost 1% against USD, which goes to show how vital a role China plays in the economic health of Australia.
China is Australia’s largest trading partner by far, doing more than two times as much business with Australia than does Japan, the country’s second largest trading partner. The Asian giant also has more than 120,000 students enrolled in Australian schools and universities and is the largest buyer of Australian government bonds.
The Australian dollar has also not been helped by Wednesday’s plunge in the price of iron ore. The commodity is Australia’s number one export and its price is also considered by many analysts as a reliable gauge of China’s economic health (China is by far the world’s largest consumer of iron ore). On Wednesday, the NYMEX futures contract for 62% content iron ore settled at $55.03 per metric ton, down from $57.85 a day earlier.
The Australian dollar, which had been dragged down since mid-March by a tumble in the commodity’s price (iron ore has fallen from $89 in mid-March), was offered some respite in recent weeks when iron ore stabilized above $60. After moves in recent days, it seems however, that any optimism about the commodity’s future price has been crushed.
On May 6th, Richard Knights, a commodities analyst at Liberum Capital, told the Sydney Morning Herald that he expects iron ore prices in the $40s in the second half of 2017.
A Great Time to Buy Australian
With the value of Australia’s currency so far below its 2017 highs (AUD has fallen more than 10% against the euro since February), now is a great time for non-Australians to make Australian dollar payments or pick up Australian travel money for upcoming holidays.
For Australians working overseas, it’s also fitting to send money home to family at today’s favourable exchange rates. Consider that sending EUR 10,000 to Australia today with BestExchangeRates’ best value FX provider will return loved ones an amount of AUD 15,032 (AUD 500-600 more than if you change money with a retail bank). A little more than 3-months ago, sending the same amount, they’d have picked up only $13,450 or thereabouts.
As well as finding better exchange rates with our comparison calculators for AUD travel money and AUD foreign currency transfers, business owners who might be negatively impacted by further falls in Australia’s currency should consider reading our guides to managing FX risk.
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