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Australian Economy Expands 0.6% in Q3; Australian Dollar Dips

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australian economy
  • Australian Economy Expands 0.6% in Q3; Australian Dollar Dips

Weak consumer spending and rising household debt continued to dictate Australian economic direction in the third quarter of the year. Despite growing public infrastructure and private business investments supporting broad growth, economic growth slowed in the third quarter.

According to the Australian Bureau of Statistics, the economy expanded at 0.6 percent, quarter on quarter in the third quarter. This was slower than the 0.9 percent recorded in the second quarter and weaker than the 0.7 percent projected by most economists.

On a yearly basis, the economy expanded at 2.8 percent, still below the 3 percent expected by experts and suggested that the strong Australian dollar during the quarter subdued exports and impact the economy amid sluggish wage growth.

However, continuous investment in the construction sector added 0.9 percent to growth in the quarter, offsetting a 0.1 percentage decline from residential building.

“Investment was a big positive driver (up 1.8 per cent quarter-on-quarter), but was somewhat flattered by a sharp rise in non-dwelling construction which likely came from the installation of two LNG platforms in WA/NT,” BIS Oxford Economics head of economics for Australia Sarah Hunter wrote.

Despite improved investment, consumer spending which makes up about 60 percent of the economy grew at the slowest pace since 2008, expanding just 0.1 percent in the quarter. Suggesting that weak wage growth is hurting household spending and reinforced Tuesday’s projection that surged in retail sales might be a temporary upsurge. Therefore, it is unlikely the Reserve Bank of Australia will raise interest rates anytime soon.

The Australian dollar weakened further against the US dollar to 0.7578. This further validated our September projection that Australian dollar is overpriced and remained unattractive above 0.8080 price levels.

AUDUSDWeekly

While the uncertainties surrounding tax cut and North Korea missile threat is weighing on the US dollar outlook. The Australian dollar, on the other hand, is overpriced and likely to remain less attractive in coming days. An excerpt from September 18-22 forex weekly outlook.

Taking into consideration strong US economic fundamental and the success of tax reform, the AUDUSD pair could easily close below 0.7500 price level in 2017 if geo-political tension subsides. Therefore, we remain bearish on AUDUSD and expect further drop in Aussie value towards 0.7333 in the first quarter of 2018.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

US Dollar

CBN Warns Against Rejection of Old and Lower US Dollar Bills

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Global debt

The Central Bank of Nigeria (CBN) on Tuesday has warned both the Deposit Money Banks (DMBs), Bureau De Changes and other forex dealers against rejecting old and lower US dollar denominations.

In a circular dated April 9th, 2021 and signed by Ahmed B. Umar, Director, Currency Operations Department, CBN, the apex bank said it has received several complaints from members of the public on the rejection of old and low denominations of US Dollar bills by authorised forex dealers operating in the country.

The CBN, therefore, mandated all DMBs/authorised forex dealers to accept both old series and lower denominations of United States Dollars (USD) that are legal tender for deposit from their customers.

The leading bank added that it will not hesitate to sanction any DMB or other authorised dealers who refuse to accept old series and lower denominations of US dollar bills from their customers.

Also, the apex bank warned all authorised dealers to desist from defacing and stamping US Dollar Banknotes as such notes always fail authentication test during processing and sorting.

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Naira

Naira Remains Under Pressure Amid Weak Macro Fundamentals

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Naira Dollar Exchange Rate

The Nigerian Naira plunged as low as N422 to a United States Dollar on the NAFEX window on Wednesday before moderating to N410 following a series of weak macroeconomic fundamentals released in recent weeks.

Nigeria’s inflation rate increased by 18.17 percent year-on-year in March while the unemployment rate rose to 33.33 percent with new job creation hovering at a record low amid weak economic productivity.

The commodity-backed currency traded at N486 to a US Dollar on the parallel market popularly known as the black market.

Against the British Pound, the local currency was exchanged at N670 and N577 to a Euro common currency.

At the Bureau De Change segment of the foreign exchange market, Naira traded at N482 per US Dollar; N670 per British Pound and N580 to a Euro.

In an effort to up revenue generation and ease exposure to the unstable global oil market, the Federal Government of Nigeria had removed electricity tariffs, fuel subsidy, introduced other import related charges and devalued the local currency more than three times in the last 12 months despite the negative impact of COVID-19 on the masses.

The series of adjustments dragged on economic productivity as importers and other forex-dependent businesses struggle with persistent dollar scarcity largely due to low foreign reserves of $35 billion caused by weak crude oil production and OPEC production cap.

The apex bank’s inability to service the economy with sufficient dollar to ease liquidity challenges in spite of various measures introduced recently to lure diaspora to remit more escalated prices of goods while the surge in electricity tariff, petrol price and other increments were passed on to already stressed customers.

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US Dollar

Dollar Drops as Traders Prepare for Inflation Data

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Forex Weekly Outlook October 31-November 4

The dollar slipped on Monday towards a three-week low as Treasury yields traded near recent lows and traders awaited crucial U.S. inflation and retail sales data in coming days.

Elsewhere, it was a quiet start to a data-heavy week for foreign exchange markets. The euro climbed back above $1.19 while the British pound rebounded from a two-month low.

The dollar’s performance has been tied to U.S. Treasury yields for most of 2021, after concern about rising inflation in the United States and a stimulus-fueled economic rebound triggered a jump in Treasury yields in February.

A fall in U.S. yields last week triggered the worst week for the dollar in 2021. With yields inching lower on Monday, it was back under pressure.

Federal Reserve Chairman Jerome Powell said in a U.S. media interview released on Sunday that the U.S. economy was at “an inflection point” and looked set for a strong rebound in the coming months, but he also warned of risks stemming from a hasty re-opening.

Investors are now waiting for U.S. March inflation data due on Tuesday.

“We are set to see the first evidence of the much anticipated surge in inflation that is widely expected through the coming months as base effects from a year ago begin to take effect as the sharp declines post-COVID start to fall out of the annual calculations,” MUFG analysts said.

They said the dollar’s fortunes could well “remain linked to 10-year yields”.

The benchmark 10-year Treasury yield was at 1.664% after dropping to as low as 1.6170% last week. It had surged to a more than a one-year high of 1.7760% on March 30.

The dollar index, which measures the U.S. currency against a basket of currencies, weakened 0.2% to 92.03. The euro initially dropped but later recovered and was up 0.1% to $1.1915.

Bitcoin traded above $60,000, closing the gap to its record high.

Against the pound the dollar initially gained before reversing course. The British currency was last up 0.5% at $1.3763 after briefly touching a two-month low of $1.3669 as traders cheered the latest phase of the government’s economic re-opening plan.

The dollar fell 0.3% to 109.33 yen versus the Japanese currency.

U.S. dollar net short positions have fallen to their lowest in nearly three years, according to data published on Friday.

ING analysts noted that speculators had cut their net short dollar positions for the 12th consecutive week, which could prove a headwind for further dollar gains.

“At this stage, the dollar has lost all its positioning “advantage”, having a neutral speculative positioning, which suggests we should no longer see dollar rallies against most G10 currencies exacerbated by the unwinding of USD shorts,” they wrote.

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