Aussie dollar is under pressure
Sep 12, 2008
Over the past few years, the Australian dollar has been flying high, gaining almost 100% against its US counterpart. But last week it fell to a one-year low of around $0.80.
One problem is the poor domestic data. Retail sales have posted their biggest fall in six years as indebted consumers cut back, business confidence has slid and the housing market has turned, prompting an interest rate cut from 7.25% to 7% by the central bank last week.
Mounting risk aversion has also taken the shine off the carry trade, undermining currencies with high interest rates, such as Australia. Then there's the fall in commodities prices, which comprise 60% of Australia's exports. High prices have given Australia a stimulus worth 13% of GDP since 2001, according to Morgan Stanley, and now raw materials are trending down. The CRB commodities index has slid by almost 20% since late June, while the dollar is recovering.
The OECD leading indicator and global industrial production are at six- and five-year lows respectively and China is slowing – all of which points to slower global growth and softer commodity prices, says Morgan Stanley.
And with demand for commodities slowing, the Aussie dollar is set for further falls, says Richard Grace of Commonwealth Bank.
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.
