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Australian Dollar Falls but Recovers Following Moody’s Downgrade of Australia’s Top Banks

On Monday, US ratings agency Moody’s cut its credit ratings on Australia’s four largest banks by one notch to Aa2 from Aa1. The banks – Westpac, ANZ, Commonwealth Bank and National Australia Bank – retain their “investment grade” status but are no longer top-rated by the agency.

Less well known, smaller banks that were downgraded include Bendigo and Adelaide Bank and Credit Union Australia.

The agency pointed to soaring house prices, elevated levels of household debt and stagnant wage growth as sources of concern, each of which make it more difficult for borrowers to pay back their loans and consequently pose risks to the aforementioned banks.

Today’s announcement concludes a review by Moody’s of the Australian banking industry which they began in February. The downgrades to one notch below top-rated also brings Moody’s ratings in line with those of the other two agencies forming the ‘Big Three’, namely Standard & Poor’s and Fitch.

AUD/SGD 3 Month Chart

Amid an economic environment of rising interest rates (realized or expected) and indirect tightening of monetary conditions, such as that induced by the tapering of quantitative easing by central banks globally, agencies and analysts are throwing extra resources into their reviews of the global banking system, so to avoid anything like the near-banking failure which occurred in 2008.

Following Moody’s announcement, the Australian dollar fell by 0.5% against the US dollar from levels around 0.7620 to 0.7585, but has since recovered around half of those losses. The Aussie lost a similar amount against several of the other FX majors but is also rallying as trading transitions into the New York session.

The Australian dollar has been resurgent in recent weeks having fallen more than 5% against the US dollar between mid-March and mid-May and more than 11% against the euro between late February and early June. The currency had sunk following patchy economic data and a tumble in the price of Australia’s largest export, iron ore, but is now recovering following a change in general risk sentiment – something which supports the Australian dollar – and stellar jobs numbers last Thursday. Data released by the Australian Bureau of Statistics on Thursday showed that the country added 42,000 new jobs in the month of May, far better than the market estimate for just 10,000.

Even with today’s slightly negative news, against the US dollar the Australian dollar still buys $0.76, placing the exchange rate roughly at April’s levels. Against the Japanese yen, the Australian dollar buys ¥84.60, slightly down on Friday’s rates which traded to an eleven-week high of ¥84.80. Against the Singapore dollar, the Aussie reached an eight-week high today, having risen to buy as much as S$1.056.

BestExchangeRates readers can change money into or from Australian dollars at exchange rates far better than those available at a typical bank or Bureau de Change by using our online comparison calculators for AUD travel cash and AUD foreign currency transfers.

Joel Wright Author: Joel Wright

Joel has been involved in the markets for the past 10 years. During that time he’s worked in market analysis teams in London, in the financial technology sector in Singapore – working mostly with automated trading tools and algorithms – and most recently he’s been planning FX risk hedging for an SME in Bangkok. Joel has a first-class honours degree in Financial Services and currently writes about foreign exchange for several global businesses.

You can get in touch with Joel via email here or via the contact page.
Please note that the opinions of our authors are their own and do not reflect the opinion of BestExchangeRates and should not be taken as a reference to buy or sell any financial product. Full Disclaimer

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