Like all reputable money exchanges, we are registered with AUSTRAC and regulated by the Australian Securities and Investment Commission (ASIC). However, he noted, recent declines in the Australian dollar bitmex review against the greenback have been much less on a trade-weighted basis. “That leaves the Aussie dollar very vulnerable from an interest rate differential perspective,” Mr Franulovich explained.
- Although only a small portion of bilateral trade is done with the US, most of Australia’s exports are US dollar-denominated commodities, so the exchange rate matters.
- The other big influence is China’s surprisingly weak economic rebound from its severe Covid lockdowns.
- The former chair of the ACCC says taxes must rise if the federal government wants to deliver the essential services Australians demand.
“Markets there were questioning the fiscal credibility of the UK authorities and that sent the pound reeling and interest rates soaring there last week,” Mr Franulovich explained. That extra stimulus in the economy would have counteracted the Bank of England’s measures to try to slow the rate of inflation. Already struggling in poor economic conditions, the British pound went into freefall last week after the UK government announced tax cuts for higher earners that were to be funded by borrowings. “And now, while there’s a little bit of a respite on the freight front, that’s sort have been evaporated by this fall in the currency.” “Our members in the importing community have had a really rough three years — they’ve had COVID-related supply chain crises, that flows into sky high shipping rates, and also our biosecurity agency is quite chronically challenged.
After all, it often comes with other bad news such as the stock market falling and commodities prices crashing. Viewed alongside those two, a falling Aussie dollar must also be bad news. Commodity exports to China make up a big portion of the economy so a drop in these exports, directly impacts the Australian economy and drives down the value of the currency. There are 3 main reasons the Australian dollar is so low and they are all have one thing in common – China. China is Australia’s largest trading partner, not just for commodities like iron ore and coal but also for our other important exports like tourism and education. The US economy’s surprising strength has led to expectations that the federal reserve will raise its key interest rate again beyond the July increase to a range of 5.25%-5.5%.
One of the main reasons the AUD to USD exchange rate is falling is the drop in commodity prices and demand for the commodities that Australia produces, like iron ore and coal. Last year saw a fluctuation for the price of AUD, with ongoing global crises affecting the market significantly. As the RBA explains, Australia has a floating exchange rate, “meaning the movements in the Australian dollar exchange rate are determined by the demand for, and supply of, Australian dollars in the foreign exchange market”.
Australian Dollar Forecast: AUD/USD Takes on Trendline Resistance. What’s Next?
Without a strong global outlook, the demand for Australian dollars falls, which in turn affects its value negatively. Furthermore, as a number of European economies face headwinds, and China’s rate of growth appears to slow, many investors are backing ‘safe-haven’ investments like the US dollar. Domestically, interest rates and inflation figures also affect how the Australian dollar performs on the foreign exchange market. And against the USD–which has even higher interest rates and inflation than Australia–the AUD has been falling at a steady rate (with some brief increases) for the better part of the last year or so. Most global currencies rose from their bottoms against the US dollar in November 2022 after October US inflation data came in lower than expected. The market moved quickly to price in a slower pace of US Fed rate hikes going forward.
- AUD extended its outperformance against USD in 2023 with AUD/USD rates gaining 1.3 year-to-date (YTD) as of 20 February.
- The RBA cut interest rates when the pandemic hit back in March 2020 and then again in November of the same year.
- Such a shift in the exchange rate – if not more – is what private economists are tipping.
- “When the Aussie dollar falls against the US dollar, imports become significantly more expensive for importers and, by extension, businesses and consumers,” Sal Milici from the Alliance told The Business.
Instead, the downward policy pressure looks like it remains in force, and at least some of that comes from the political sphere. Households would remain crushed by their huge debt loads, anaemic investment would worsen, and groups such as retirees would continue review the kelly capital growth investment criterion to see the value of their savings eroded by persistent inflation with no hope of offsetting wage gains. “Australia is exposed,” Future Fund chief executive Raphael Arndt told AFR Weekend this week as he warned that “inflation is staying high and staying sticky”.
The author has not received compensation for writing this article, other than from FXStreet. Download our free sentiment guide to understand how changes in AUD/USD’s positioning can act as a key technical indicator of upcoming price movements. “We do think [that], by early next year, the Federal Reserve will have gotten close to the point where they’ve got rates in fairly restrictive territory.
Market volatility
The ‘risk off’ mood was sparked by US job figures, released on Friday, which showed 263,000 roles were added to the American economy in September, and the unemployment rate had fallen to 3.5 per cent, near its lowest level in 50 years. Australian shares have fallen significantly, tracking heavy losses on Wall Street as worries about higher interest rates and a potential recession in the United States hurt investor sentiment. Inflation across the world have a huge impact on interest rates which, in turn, changes the value of each currency and exchange rate. The US economic calendar recently featured the University of Michigan’s Consumer Sentiment, which deteriorated in October to 63 from last month 68.1 and missing estimates of 67.2.
Commodity prices
And oddly enough, the central bank is not a very helpful guide at all, and nor, it turns out, is the government, when it comes to the exchange rate. All three banks anticipated a rising currency on the back of improved Chinese demand for iron ore and a softer US dollar. Treasurer Jim ig group review Chalmers is alive to these forces, having discovered the upsides of a falling currency on his revenue outlook. When the big resources companies led by BHP and Rio Tinto repatriate their strong foreign currency earnings into weakening Australian dollars, Treasury’s tax take booms.
The Aussie dollar is dropping against the US currency, but it’s not all bad news
That does not necessarily mean hedging for the full 12 months of the financial year. There’s a reason Lowe, some of whom in Labor have accused of going too far with this year’s interest rate hikes, is leaving his job in about two weeks after Chalmers failed to extend his term. Since 2014, the dollar has rarely peaked above US80¢, the last time in early 2018, even as ships loaded with iron ore, coal and LNG collected record prices.
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Two batches of weak data – from modest wage increases to an uptick in the jobless rate – have reinforced expectations lately that the RBA’s work is done. Market participants expected that the Chinese economy would pick up steam after the cancellation of its zero-Covid policy. Therefore, the local authorities have even initiated measures to stimulate the economy.
And yet, it still had further to go, with the dollar dropping by more than 1% this week to a 10-month low of 63.58 US cents. For as long as anyone could remember, we’d always had a large premium on our money market rates because, as a small economy, we’d always invested more than we earned and so we needed to borrow the shortfall offshore. NAB is alone among the big four commercial banks to forecast another RBA interest rate rise, and a weaker dollar may force its hand. Forecasting precisely where the dollar will go is fraught with risk, and difficult to predict. However real wages are not expected to increase for another couple of years, and that’s before considering the affects of a falling dollar on consumers’ purchasing power. The lower the dollar falls, the more upwards pressure it will put on inflation and, of course, the cost of living.
AUD/USD slides to weekly lows amid risk-off mood mixed US data
Since then, the Aussie has been on a steady decline against USD, weighed down by a number of factors including the Chinese real estate sector crisis, Australia-China tariff wars and an aggressive rate hike cycle by Fed. Data from Westpac, the Australian dollar was 0.738 cents to the US dollar in March 2022. In 2022, there was a fluctuation in the price of AUD, with ongoing global crises affecting the market significantly. The European Central Bank (ECB) is also expected to lift rates by 0.75 percentage points, while the Bank of England is tipped to announce an increase of at least 1 percentage point (or 100 basis points) at its next meeting.
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