THE TAKEWAY: Australian consumer confidence wanes > Global slowing likely to weigh on sentiment > Australian Dollar declined
The Australian Dollar declined in value versus the U.S. Dollar as Australian consumers feel less confident about their economic future. The Westpac Consumer Confidence Index registered 96.6 in August, down from 99.1 in July marking a 2.5 percent drop in optimism for the month. The index measures family finances from a year ago as well as projected economic conditions over the next one to five years. The last component indicates buyer’s willingness to purchase major household items. A reading below 100 suggests a greater degree of pessimism than optimism.
Although confidence has waned, recent wage data suggests workers have earned slightly more in the second quarter and throughout the year as the Wage Cost Index reports labor earned 3.7 percent more this year compared to last year. However, recent talks of global slowdown may have played a role in the unwillingness to consume as economic uncertainty throughout Europe and China pose substantial risks to the Aussie economy.
During times of economic uncertainty investors have a propensity to hold assets that are less risky like the U.S. Dollar and sell higher yielding investments that carry greater degree of risk like the Australian Dollar. Furthermore, volatility and volume measures have been abnormally low throughout financial markets during August. Often, risk aversion accelerates as volatility increases.
AUD/USD, 1 Minute Chart