The five day chart for the Aussie dollar is a strange one. Indeed, it hit its lowest level since 2009 in a sharp and dramatic plunge:
The one year chart, while not as strange, doesn’t look much better either:
At one point it was trading at .683.
So what explains the most recent dip?
Strangely enough, it can be tied back to an announcement coming out of Apple that has broad ranging implications.
Apple’s Chinese sales disappoint, Aussie dollar reacts
In the announcement, Apple CEO Tim Cook noted that,
‘Most of our revenue shortfall to our guidance, and over 100 per cent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.’
He continued by tying this to the trade war:
‘China’s economy began to slow in the second half of 2018. The government-reported GDP growth during the September quarter was the second lowest in the last 25 years. We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed.’
Following the release of the letter, the next day, the US market had a steep fall as concerns over a global slowdown reared their ugly head.
The plunge in the Aussie dollar was exacerbated by thin market liquidity.
Via Business Insider, Chris Weston, Chief Market Strategist at Pepperstone had this to say:
‘We saw a liquidity event in a period labelled the ‘twilight zone’ … this is effectively the period between the close of the US markets and the open of Asia, where liquidity can drop away. Making things worse, Tokyo markets were closed.’
What does the future of the Aussie dollar look like?
The Aussie dollar is widely desired for a number of reasons, but some of these are starting to disappear.
Historically high interest rates have evaporated, and there is even the chance of a cut — something major outlets missed for months.
Perhaps the real worry however, is that a more difficult environment in China will have flow on effects to commodity prices, in particular iron ore.
Resources form part of the backbone of the Australian economy, and our relationship with China via iron ore exports is critical to both economies.
In some ways then, the AUD/USD is a proxy for the Chinese economy.
So depending on how bearish you are on the Chinese economy, or pessimistic on the prospect of Chinese stimulus, that may inform your outlook on the Aussie dollar.
For Markets and Money