Aussie Dollar Steadies Despite Pressure Building

The Aussie dollar steadied today around 72.5 US cents after a period of volatility yesterday.

Perhaps markets had already priced in the Federal Reserve’s move to raise interest rates by the time it was officially announced early this morning.

The real story however, is that there will be a growing discrepancy between the Federal Reserve in the US and the RBA in Australia.

With an RBA cash rate that currently sits at 1.5%, the Fed is targeting another three rate hikes in 2019.

For two years the RBA cash rate has been at historic lows:

RBA Cash Rate 1980-2018

Source: abc.net.au

As covered earlier, this could flag further falls in the dollar.

This finance expert is predicting a serious crash in the value of the Aussie dollar. Get survival tips here (free).

Even with improving commodities prices, if there is a growing gap between US and Aussie interest rates, pressure will build.

What do we mean by pressure?

In a nutshell, a big difference between interest rates in Australia and the US leads to a slowing of foreign investment.

Aussie dollar walking a tightrope

As our largest foreign investor, US companies could choose to keep their money at home rather than invest it here.

If there is a downturn in Australia, the RBA has little room to manoeuvre.

It’s like walking a tightrope.

A sharp downturn in the housing market could spark a loan default epidemic, especially amongst those with interest-only loans.

The housing market is already falling.

It is also worth remembering that Aussie banks source some of their funding from the US.

This will make it harder for Aussie banks to keep interest rates down — Westpac has already raised its interest rates earlier this year.

Where all this leaves the Aussie dollar, we will find out in the coming months.

Regards,

Ryan Clarkson-Ledward,
For 
Markets & Money

PS: Aussie Dollar Crash: Unique ‘crash protection’ investment to shield your wealth from a sinking dollar. Get the strategy here.


Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:


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