The Australian dollar (AUD) recently traded at 78 cents against the USD. It is extraordinary that the AUD can remain above its long term average at a time when the prices of commodities remain very low. Just how high can the AUD go?
It is expected that since the AUD is a resource dependent currency, in the current economic environment its value should be closer to 60 cents against the USD. But as shown in the chart below, at its current value the AUD remains at about its mid-range for the last 25 years and as such it seems to be significantly over valued. The recent rise in the AUD is due in part to the weakness of the USD, where the USD index has fallen some 6% over the past 3 months. But the following daily chart which compares the AUD and the US dollar index shows that… Continue reading
The value of the Australian dollar (AUD) is affected by a variety of factors. The more important of these are interest rates, commodity prices and the Chinese economy. But other factors include the RBA rhetoric, national growth numbers, consumer and business confidence, labour and housing markets, the equity and bond markets, inflation figures and of course the strength of the United States dollar (USD). All of these are parts of a puzzle when it comes to valuing the AUD.
When one considers that most of the above factors that affect the AUD are likely to deteriorate further, a continued fall in the AUD can be expected. Consider the monthly chart of the AUD below. The Australian dollar has fallen significantly from its high of $1.10 against the USD but at its current value of 71 cents it is now merely at about its long term average,… Continue reading