Growing concerns about the Chinese economy helped wipe $40 billion off the value of Apple shares even though the company has reported a sharp increase in global sales and profits. This fall was mirrored by a slide in shares in mining and commodity shares. Oil, gold, zinc, copper were all down on the same day.
This is simply a reflection of the continuing and rising importance of Chinese demand.
UBS economists said “World trade volumes for both goods and services have risen by less than global GDP over the past four years.” Add to this that markets are anticipating a US interest rate rise which could see investors pulling their money out of emerging markets and back to the US and we could see further economic problems in China.
Australian Dollar (AUD) / United States Dollar (USD)
As well as major declines against the GBP we have also seen huge declines against the USD.
The Reserve Bank of Australia index of commodity prices fell 52.9% in US dollar terms between the peak in July 2011 and June 2015 which helps explain the Aussie decline as we are still very much a commodity economy.
Factor in probable interest rate rises in the US and the UK and we can expect to see further declines for the foreseeable future.
Today the AUD/USD exchange rate is 0.7358.
Australian Dollar (AUD) / British Pound (GBP)
In the UK the monetary policy committee (MPC) has suggested the Eurozone could falter if there are renewed disputes between Greece and its creditors. In light of these concerns and uncertainty about the prospects for wage growth the MPC voted unanimously to maintain the base rate at 0.5%.
The minutes said “For all MPC members, the policy decision this month was clear cut.”
The Bank of England governor, Mark Carney, argued last week that Britain would need to start raising interest rates to cool economic growth and prevent inflation heading above the 2% target.
Add this to the fact that the Australian Reserve Bank is hinting at rate cuts and we can expect to see the Pound continue to strengthen against the Australian Dollar.
However, looking 6 months in the future, if global economic conditions improve, and commodity prices start to rise again after finding their floor and the RBA hints at a rate rise – then the trend will start to reverse.
Today the exchange rate is AUD/GBP 0.4742