Australian Dollar approaches record highs against Sterling and US
Dollar
The Aussie dollar was buoyed by recent inflation figures and a higher
Consumer Price Inflation figure expected on Wednesday. Although the
economy seems to be slowing down the surge in commodity prices continues
to put pressure on the inflation figures coming out of Australia.
Meanwhile, Sterling has taken an aggressive hit as the market has not
reacted positively to the Bank of England backed solution to credit
crunch or the Royal Bank of Scotland’s humble admission to the market
that it requires recapitalisation to the tune of £10 billion.
GB Pounds / AU Dollar has dropped to 2.10. The US Dollar has dropped to
0.94 cents but this could fall further as the economy deteriorates
further in the US and the Fed is forced to cut rates further.
Aussie and Kiwi Dollars benefit from more risk appetite grows and
Asian export figures surprise to the upside
The high yielding currencies have come back into favour of late as
investors seek enhanced returns and perhaps as a hedge against a
declining US Dollar.
Despite the slowdown in the US strong export data out of the Asian
region has shown that, at least for now, a US recession has not hit home
in Australasia. Unemployment in Australia is near its lowest point in 33
years but wages are not accelerating, this would suggest that interest
rates have peaked in Australia.
Any material slowdown in the economy may start the Reserve Bank of
Australia on a series of interest rate cuts but we would not expect
these until much later in the year. The long and short of this is simply
that the Australian Dollar will hold at these high levels and
possibly push to new highs in the coming weeks.
GB Pound/AU Dollar is now down to 2.12 and AUD/US Dollar is very close
to 0.93 cents
Falling house prices see dramatic fall in Sterling. Aussie dollar
remains well bid
Softer retail sales data in Australia did not seem to affect the value
of the Aussie dollar. Indeed, the AU Dollar has held up remarkably well
against a resurgent US Dollar and has hammered Sterling again.
The UK was rocked by a month on month housing price fall of 2.5%. This
would suggest that the UK is already in the throes of a property price
meltdown on a similar level to the US. Sterling is now the target of
many traders as they push it down to lower levels.
A mild resurgence of risk appetite has also seen the re-emergence of the
carry-trade where investors sell low yielding currencies such as the
Japanese Yen and buy hi-yielders such as the Aussie dollar. This has
created more AUD buyers than sellers and allied to increasing commodity
prices this will likely keep the Australian dollar at these high levels
for some time.
Australian Economy Cools as High Interest rates take effect
We are definitely seeing a softening in the Australian economy as
consumer demand slows from its torrid pace over the last few years. High
Interest rates are acting as a brake on the economy and continued
turmoil in the world’s financial markets have signalled a note of
caution as consumers have reigned in their spending.
Although the Aussie dollar sold off last Friday it is now approaching
very high levels particularly against Sterling. My personal view is that
the AU Dollar will not weaken significantly until the RBA begins to cut
interest rates.
In the meantime expect resurgent commodity prices to keep the Aussie
strong against the USD and GBP. GBP/AUD 2.15 . AUD/USD 0.9220
The fall in Commodity Prices keeps the Aussie dollar at bay
With the Reserve Bank of Australia keeping interest rates on hold and
commodity prices falling again we expect the AUD to continue to fall
back against the US Dollar in the short term.
Sterling has taken a big hit this week and has actually lost ground
against the Aussie as fears mount over the state of the UK economy and
housing market. Expect Sterling to lose more ground against all
currencies in the mid to long term as the slowdown takes root in the
real economy.
We still feel that markets have a lot further to fall and risk aversion
will come back into play over the next few weeks.
Usually the Aussie dollar weakens when global financial markets fall as
traders and institutional investors withdraw their funds from currency
carry trade positions. However, with the dire state of the US dollar and
a weakening UK economy the Australian dollar may start to look like a
safer bet for the future.
Commodity Prices bring Aussie dollar down from its highs
Last weeks collapse in commodity prices saw the Aussie dollar pulled
down from its recent highs against the US Dollar and Sterling. Commodity
prices had been pushing through all-time highs as investors sought
refuge from a depreciating US Dollar and inflation. Australia as a major
exporter of commodities has benefited to no end due to the rise in
prices and the Aussie dollar has reflected this as well. While we may
have seen a correction in commodity prices last week I do not anticipate
commodity prices falling further, indeed they have already pulled back
this week. While we do not anticipate the Reserve Bank of Australia to
increase interest rates any further, deteriorating economic conditions
in the US and UK will keep the Aussie dollar at higher levels. GBP/AUD
trading at 2.16 and GBP/USD 0.9217
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