Navigating Market Volatility in 2019

Foreign Exchange – 2018 in review

2018 proved a challenging year for both the Aussie and Kiwi dollars as they both produced multi-year lows, AUDUSD retreating ~10% whilst NZDUSD faced calmer headwinds, falling ~6%.

It proved a solid year for the Kiwi dollar against its Aussie cousin, as the ongoing US x China trade rift had a more profound downside effect on the Aussie dollar, NZDAUD ending the year ~5% higher and poised for further gains in early 2019.

Back in early October, the Brexit news flow was glowingly positive – proclaiming that a deal was imminent. Five months on and Theresa May’s debacle continues to unfold with NZD and AUD sitting ~7% and ~3% higher from the October lows and braced to track higher should no deal be reached over the coming 6 weeks.

The GBP/AUD rate has moved between a range of 1.59 and 1.87. A distinct uptrend has occurred over the past two years with weak demand for Iron ore and a falling property market weighing on the AUD.

The GPP/NZD rate has fluctuated 17% over the past two years, with a range between 1.73 and 2.04. Uncertainty over Brexit has been a major driver of the movements and we expect volatility to continue.

Current key themes

1. US-China trade talks | Markets are expecting progress this week, either a reduction, delay or removal of tariffs
2. BREXIT | The outlook is till very uncertain, odds growing of a second referendum or hard BREXIT.
3. The RBA | Have recently shifted to a neutral stance meaning that rate cuts could be occurring later 2019
4. The RBNZ | Confirmed last week that rates are on hold and cuts not on in play for the time being
5. NZDAUD | The Kiwi continues to march higher against its antipodean cousin with likely further topside as Aussie house prices continue to fall.

What you can do

The market forecast above highlights the importance in having a plan in place for navigating and protecting yourself from currency risk in the year ahead.

Similar to a business’ foreign currency policy which provides them with a strategy as to how they manage their currency requirements, you too should have a plan in place if you have a need for a high value transaction this year.

The team at XE will be your eyes and ears in the market and will be able to provide you with advice to navigate any currency risk on the horizon.

We have a range of products designed to help you mitigate your currency risk, including:

Market Orders help protect against any adverse negative movements in the market
A Forward Exchange Contract (FEC) allows you to lock in today’s rate for a future settlement in the next 12 months
A currency option gives you the ability, but not the obligation, to sell your currency at a desired future date with an upfront premium
Whatever your needs or situation, feel free to get in touch with the team at XE to discuss the best approach to your foreign currency needs.