Is the Australian Dollar Dream ride over……
Volatility in the global markets is at a three month high, and you can clearly see the evidence. The Australian Dollar (AUD) has been on a roller-coaster ride over the past 15 years not to dissimilar to the ‘Buzz saw’ at Dreamworld and of late ended up on the ‘Giant Drop’ which has caused ‘Shockwaves’ but hasn’t been a total ‘Wipeout’.
In April 2001 the AUD hit a record post float low of 0.4770 AUDUSD, in July 2011 it was well above parity at 1.10 and is currently sitting at 0.6993 at 8am AEST. Australia’s economic condition over the past 4 years has deteriorated and the Australian dollar has declined.
What is influencing the Australian dollar?
US Interest Rates. December 2015 saw the US Federal Reserve go ahead and raise the rates a token 25 basis points. Although a small gesture of 0.25% is still a major move as it’s been nine years since the last interest rate increase. Fed Chair Janet Yellen has stressed the word “gradual” to describe the pace at which rate increases will occur. All we need to know is that rates are on the up and that is enough to affect the AUD; this does mean that a fall against the Greenback perhaps could be slowed if the Reserve Bank of Australia suddenly decided to increase AUD Interest Rates but given the fragile state of the Australian economy that idea has gone down the ‘River rapids’.
The Chinese Yuan, let’s be clear every time we hear news out of China the Australian dollar goes into a ‘Tail Spin’. It’s no secret that China’s economy is slowing and although policy makers in Australia and China are trying to figure out alternative sources of growth it is almost certain that there will be further devaluations of the Yuan and further losses for the AUD but we do hope it holds on like ‘The Claw’.
Commodities prices went on the ‘Tower of Terror’ last year as the two key exports out of Australia iron ore and coal fell dramatically. The Australian Dollar is a commodities currency which does mean that it’s value is very much tied to movement on the commodities market.
Where to from here? Well grab some candy floss and relax. The Australian dollar is ‘range bound” at the moment, however longer term the dollar is heading lower.
“Today’s market wrap was not sponsored by Dreamworld.”