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Fed and Economic Data Add to a Terrible Day for Australian Dollar

#News #AUD #CAD #EUR #GBP #SGD #THB #USD
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Yesterday on BestExchangeRates.com, we suggested that now might be the time to change your Australian dollars into Canadian dollars, having seen the Aussie’s buying power reach 6-month highs on Tuesday.

Those words now seem prophetic, given what we saw yesterday in Australian dollar exchange rates. The Australian dollar tumbled across the board yesterday, including against the Canadian dollar.

At the end of the New York session, the traditional end of the FX trading day, AUD/CAD had posted its largest daily fall since April-2016 – a fall from highs near 1.0350 to 1.0190.

Against the US dollar, the Aussie experienced a similar loss, falling from highs near 0.7550 to 0.7422 by the day’s end.

As if to add insult to injury, following the outcomes of this morning’s FOMC meeting and economic data from Australia and China, the Aussie has fallen further still. In fact, from talking about highs in the buying power of the Australian dollar yesterday, as of writing at 04:15 GMT, we could now talk about multi-month lows against many currencies, including the Singapore dollar (new lows of 1.0352, a 7-month low), the British pound (0.5753, a 7-month low), the euro (0.68, a 4-month low), the US dollar (0.7407, nearly a 4-month low) and the Thai baht (25.61, a 1-year low).

 

Why Is the Australian Dollar Falling?



AUD/USD 3 Month Chart

The Australian dollar is suffering from a fall in the price of iron ore – the focus of yesterday’s piece – but also from an evaporation of the interest rate premium it holds over the US.

As a resilient, developed economy, funds have long been held in Australia to earn the higher rates of interest typically paid on Australian dollar funds. Between 2008 and 2012, the national Australian interest rate averaged around 5%. By comparison, for much of that time, rates in the US were at 0.25%.

With rates in Australia now at record lows of 1.5%, with no imminent increase on the radar, and with rates in the US either climbing or expected to climb, the reasons for holding money in Australia are now fewer than they were, and the foreign exchange risk associated with holding funds in AUD is elevated, which forces yet further funds out of Australian dollars and drives the AUD/USD exchange rate down.

 

Three More Strikes Against AUD

As already mentioned, further to yesterday’s fall and the FOMC statement, this morning saw the release of economic data from Australia and China, all of which was negative for Australian dollar valuations.

For the layperson, or lay-Australian, who might wonder what China has to do with the value of their local currency, know that the economic health of China is vitally important to Australia’s national income. China is Australia’s largest trading partner by far. Data from Australia’s Department of Foreign Affairs and Trade shows that Australia does more than two times as much two-way business with China than it does with Japan, it’s second largest trading partner.

This morning’s data showed that China’s Caixin Services PMI has shrunk to 51.5 from 52.2 (below the forecast for 52.6), that Australia’s trade surplus has fallen to $3.11 billion from $3.66 billion (below the forecast for $3.33 billion), and that new home sales in Australia fell month-on-month by 1.1% in April, having grown by 0.2% in March.

BestExchangeRates.com’s comparison calculators offer the best way to convert your money into or from Australian dollars. Whether you need AUD travel money or AUD foreign currency transfers, our calculators offer an easy way to find the cheapest FX provider.

 

 

Further Reading

 

Coronavirus spread fears linger – USD strong – AUD at 11 year lows

This week the US Dollar was touching three-year highs when valued against a basket of major currencies. The greenback’s traditional role as one of the safe-haven currencies is helped by a domestic economy that is largely immune to the threats of the coronavirus.

Last update: 22 Feb, 2020

Coronavirus unnerves currency markets

The strong start to the year for “risk-on” currencies is already a distant memory.

Posted: 3 Feb, 2020

New Year Optimism Retreats on US/Iran Tension

The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.

Last update: 8 Jan, 2020

  

Posted to: News

 
 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.
 

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