Date: 24 Jan 2019

The Australian dollar relinquished earlier gains against the US dollar and the Japanese Yen in early Thursday trade, as another major Australian bank announced that it would be increasing lending costs.

The National Australia Bank joined Australia’s other leading lenders as it increases standard variable mortgage rates for owner-occupier principal and interest customers by twelve basis points, to 5.36%.

The Australian Dollar fell sharply on the news on the notion that it would further pressure domestic consumers, who have already been feeling the pressure from other major banks increasing mortgage lending rates. The AUD/USD pair had been enjoying an earlier boost from solid employment data from the Australian economy before the news broke. The National Australia Bank blamed elevated wholesales funding costs as a major reason behind today’s decision.

The December jobs data from the Australian economy released earlier this morning showed monthly employment increasing by 21,600, which was better than the 18,000 increase expected. Investors mainly cheered the news that Australia’s official unemployment rate fell back to 5.0%, after increasing to 5.1% during November.

A key takeaway from today’s decision from the National Australia Bank is that Australia’s leading banks are starting to become independent from the Reserve Bank of Australia, in the face of rising costs and the prospect of a potential interest rate cut sometime this year from the Australian central bank.

Recent soft economic indicators from Australia have highlighted how the recent slowdown in the Chinese economy is starting effect its economy.  An overheating domestic property market, coupled with rising consumer borrowing has also helped increase bets that the RBA will slash rates 0.25 basis points in 2019, taking the overall benchmark interest rate down to 1.25%.

 

AUD/USD Daily Candlestick Chart | Source ActivTrader Platform

AUD/USD Daily Candlestick Chart | Source ActivTrader Platform

 

The AUDUSD pair has recently been contained by a deadlock in Sino-U.S trade talks and deteriorating economic data from the Chinese economy after an earlier strong start to 2019.

Any overwhelmingly bullish news from the trade talks is likely to be supportive of further upside in this pair, although in the near-term domestic risks and slowing global growth concerns are starting to weigh.

Weakness should be expected in the short-term while the AUD/USD pair trades below its 50-day moving average. Price may gravitate back towards trendline support on the daily chart.

 

Written by Nathan Batchelor, External Analyst

 

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