You may have noticed that things have been pretty good lately. The economy is booming. Unemployment is down. And market sentiment is, generally, pretty cheerful. Overall, Australia has been a place of sunshine and financial…
Everything you need to know about the Aussie Dollar
Over the past two decades, the Australian dollar has been as low as 48 US cents and as high as US$1.10.
Currency movements occur for many reasons.
Different interest rates between countries are a major factor. Flow of funds also play a big role, meaning that if more money is coming into a country than going out, it can have a large effect on that country’s currency.
For a resource-rich nation like Australia, which tends to sell raw materials to the rest of the world while importing finished goods, the prices of commodities are extremely important for our currency.
The Australian dollar’s fall from US$1.10 to the mid-70 US cent range was largely due to the end of the mining boom in 2012. Since then, the Aussie dollar has remained relatively strong. That’s due to Australia’s interest rates being marginally higher than other countries, and the perceived strength of the Australian economy.
Trouble on the Horizon for the AUD?
However, the Australian dollar is also subject to setbacks in the financial and political climate. Threats of a potential trade war between the US and China left the Australian dollar caught in the middle in early 2018.
It is often unclear what effect these sort of international trade conflicts will have on our economy in the long term. Some analysts argue that tariffs imposed by the US and retaliatory measures taken by China could herald a positive net effect for Australia, if China replaces US goods for Australian exports.
Others argue that any instability in our two biggest trade partners can’t help but lead to instability for us. The strength of the Australian economy depends on high commodity prices and on the strength of both the US and Chinese economies.
One positive of a weaker currency is the stronger demand for Aussie exports. Demand for natural resources from China and India has pushed the Aussie dollar higher in times of demand.
But this positive can be counterbalanced by our need to import many goods that Australia does not, or cannot, manufacture alone. The death of Australia’s car manufacturing industry, for example, could leave us vulnerable to a weakened Aussie dollar.
Understanding the prospects for the Australian dollar is crucial to investors with direct currency exposure, those holding gold and other precious metals (which are typically priced in US dollars) and investors in international shares.
Here at Markets & Money, we keep you up to date with all the latest factors influencing the Aussie dollar. Below you can find all the latest articles from our editors on this topic.
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