The Australian Dollar (AUD) came under increasing pressure. Global economic uncertainties are increasing, notably from the potential for increasing tariffs from the U.S. As of this writing, the AUD is trading at 0.6470 USD. This is a 0.45% drop for the day. The Reserve Bank of Australia (RBA) is understandably worried about these developments. They’re especially keyed into how fiscal stimulus in China and other leading economic indicators will shape the value of the local currency.
Now more than ever, Australia’s economic landscape is shaped by what happens around the world. As fiscal stimulus stokes China’s economy, the demand for AUD usually increases. This operational support ensures that our nation’s trade relationships are strengthened and regional economic stability improved. Higher global uncertainty can severely affect Australian business investment, prompting the RBA to remain vigilant in its monetary policy decisions.
RBA’s Monetary Policy and Economic Indicators
The RBA meets 11 times a year to review and adjust monetary policy as necessary to maintain economic stability. These meetings are essential in understanding the importance of fiscal policy, monetary policy and emerging global financial conditions on the Australian economy. Their favorite metrics include Gross Domestic Product (GDP), Manufacturing and Services Purchasing Managers’ Indexes (PMIs), employment data and surveys of consumer sentiment.
These traditional indicators are greatly responsible for setting expectations of the AUD’s value. Any upbeat news on GDP growth accompanied by strong figures for employment can provide the currency with a lift. By contrast, a strengthening or negative trend in say manufacturing or consumer sentiment can pull it down. As RBA Assistant Governor, Sarah Hunter, explained recently, they are critical indicators that help companies weather economic ups and downs.
“Assuming weaker global growth environment will moderately dampen prices for tradable goods.” – Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter
Today, global economies are intricately intertwined. So when the big three—America, China and India—go through major structural shifts, so too do Australia’s economy and currency. Therefore, tracking these indicators is imperative for the RBA as it attempts to prevent risks and encourage sustainable growth.
Impact of Global Tariffs on Australian Exports
With discussions of higher tariffs in the United States in the past few years, fears have spread that they could upend global trade dynamics. Hunter went as far to say that these tariffs would slow economic development around the globe.
“Higher US tariffs will put a drag on the global economy.” – Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter
For Australian exporters, this situation is a double edged sword. Higher tariffs will reduce the demand for affected products – around the US and in other major markets. Australia’s exporters are uniquely poised to ride out these turbulent economic waters. They have historically adapted to changing trade conditions and can leverage strong relationships with various trading partners.
In spite of these hardships, Australia’s exporters have shown remarkable resilience in response to changing global economic conditions. Strategic diversification and innovation within industries can help mitigate risks associated with potential declines in export demand due to global tariff changes.
The Future Outlook for AUD
More recently, the outlook for the Australian Dollar appears more uncertain with changing global economic conditions. The RBA’s response to this uncertainty will be key in smoothing currency volatility and promoting long term economic development. Moreover, the Federal Reserve—the U.S. It’s important for them to be looking not only at what’s happening at home but at what’s going on outside.
Adding hope of recovery is the fact that fiscal stimulus measures recently undertaken in China may be boosting demand for AUD. That said, if global growth appears to be flagging, this could sour overall economic mood and put further pressure on AUD’s performance.