Australian dollar update 04/10/2011

[John From Moneycorp]

Global economic sentiment drives the Aussie dollar, just as it does everything else in financial markets. When the outlook is positive, the (potential) increase in demand for Australia's coal and minerals takes the currency higher. And vice versa. There was a bit of both last week, but mostly it was an extension of the AUD's retreat that cost it 6% of its sterling value in September. Nervousness about a bankrupt Greece – and about what that might mean for the world economy – has dampened demand for the Australian dollar.

 

Nor has the dollar received much help from the Australian ecostats. New home sales showed a 1.1% improvement in August but, after a cumulative fall of -16.2% in the preceding three months, it wasn’t much consolation. More worrying was a further one-point decline in the AiG performance of manufacturing index to 42.3. Anything below 50 means falling activity – and 42.3 is a worryingly low number, that increases the likelihood of an interest rate cut before the year is out.

 

From the UK perspective, it is worth bearing in mind the possibility of quantitative easing (QE) – if the Bank of England release further QE in the near future, this is likely to have an adverse effect on sterling against all major currencies. Thursday’s monetary policy committee meeting will confirm if (or when) QE is occurring.

[Tappers2oz]

Thanks for the update.

[John From Moneycorp]

From the UK perspective, the problem it has got is that even though it is acknowledged as having a viable debt reduction plan, the rest of world and their economies are struggling therefore this has an impact - sluggish global growth means countries won’t have money to buy our exports and it will naturally affect trade with those countries.

 

The Bank of England has introduced quantitative easing (QE) in an attempt to stave off and reduce the impact of the global economic downturn (one of the purposes of QE is to increase liquidity to enable growth, i.e. get money flowing through the economy).

 

Thanks

 

John

[gchapman1965]

Wish id bought now at 1.63 instead of hoping for 1.65! I have 6 weeks to lodge my money with the Oz Govt so fingers crossed it goes back up there!

[John From Moneycorp]

The Australian dollar has strengthened after it was reported that France and Germany were ready to boost the eurozone's rescue fund in a bid to address the public debt crisis.

 

The markets are very fragile currently, therefore any news is having an impact on currencies – in this case, the suggestion of a solution to the debt crisis sparked interest in the Australian dollar (making it strengthen).