The past five days have seen the Australian Dollar to US Dollar (AUD/USD) exchange rate climb from a low of 0.7268 to a high of 0.7353, although the currency has continued to fluctuate wildly in response to commodity market concerns.
Last week, the ‘Aussie’ fell and rose wildly amidst the commodity crash and concerns over the Chinese stock market. The Australian currency had to confront a reduced level of commodity demand from China and India, two of Australia’s biggest export partners. Speaking on Wednesday 22
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, Reserve Bank of Australia (RBA) Governor Glenn Stevens said that Australian economic policymakers ‘may need to adjust their idea of the country’s ideal growth rate.’ Stevens went on to warn that any further cuts to the Australian interest rate could be more harmful than helpful to the country’s growth. Cuts would have the effect of ‘stoking economic growth in the short term, but [at the expense of] setting the scene for future financial upheavals’, according to Stevens.
News came from the World Bank on Thursday that the prices for two of Australia’s major exports, coal and iron ore, were forecast to hit their lowest prices of the year between August and December, before slowly rising again in 2016. There were troubling signs over the price of gold, another of Australia’s key exports, when Morgan Stanley estimated that by factoring in a gradual price decease, by the year 2025 gold would hit a record low price of $US800 per ounce.
Friday saw yet more bad news for the Australian Dollar, as the Caixin China PMI showed a drop from 49.4 to 48.2, rather than the predicted 0.3 rise. This was a clear sign of contraction for the Asian superpower, and the reaction to this news was immediately visible in the Australian Dollar’s performance against other currencies, where it fell by over 0.7% against the Canadian Dollar, the Chinese Yuan, and the US Dollar.
The Australian Dollar received some vital aid on Monday in the form of the Chinese government announcing that it would be buying stocks in the Chinese stock market. This allowed the ‘Aussie’ to bounce back against competitors, although the gains came at a time when the Australian Dollar recorded its lowest exchange rate value against the Singaporean Dollar since 2009, falling to 0.9967.
Tuesday saw another dip in the Australian Dollar’s fortunes; estimates came that China’s demand for gold would reduce by 40% this year. As one of the key Australian exports, the news sent the ‘Aussie’ onto a downtrend. However, the Australian economy peaked the day afterwards when a surprise increase in global demand for iron ore saw the Australian Dollar gain against the Canadian Dollar and the New Zealand Dollar while trending in a narrow range against the US Dollar.
Next week, Australian Dollar exchange rate movement may occur as a result of the nation’s retail sales, trade balance and unemployment data, as well as any decisions made by the Reserve Bank of Australia. The Australian retail sales figures predict marginal growth, the trade balance forecasts are for a further increase in the nation’s deficit, and the number of employed persons in Australia is expected to increase. The RBA is unlikely to raise Australia’s interest rate in the immediate future, but any hints that the rate will go up this year are sure to rally the Australian Dollar in the immediate aftermath of such an announcement.