Financial market has continued to respond to the implications of incoming economic policy, re-emergence of trade barriers on global supply chain (including Australia) pivot prior to the US presidential election.
Amid US investors/traders optimism about rising interest rates resulting from the Trump administrations economic policies and ongoing strength in the US economy, our local currency has dropped to its lowest level over the past six months. Following the Federal Open Market Committee (FOMC) monetary policy announcement we have seen the AUD fall to 72.52 US cents on Tuesday (per Bloomberg Markets).
Westpac chief market strategist Imre Speizer has noted that “Momentum remains negative, thanks to the post-Federal Open Market Committee surge in the US dollar last week, with the next major multi-day target around the 72 US cent area.”.
Since the FOMC decision last week, economists have changed their expectations on US interest rates. Where previously they expected 2 rate rises in 2017, they now expect 3. This will have an impact on the AUD and should drive it lower. The only obstacle that could hold the AUD in the 70 cent region is ongoing strength in commodity prices.
Commsec Economist Savanth Sebastian in a recent presentation for Accession3 suggested commodity prices could remain elevated for another 12 months which may assist in keeping the AUD higher despite the rising US interest rates. However, should commodity prices fall, which they eventually should, the AUD would fall further.
CURRENCY SNAPSHOT AT 1120 AEDT ON WEDNESDAY, 21 DECEMBER 2016
One Australian dollar buys:
* 72.53 US cents, from 72.52 US cents on Tuesday
* 85.42 Japanese yen, from 85.35 yen
* 69.81 euro cents, from 69.76 euro cents
* 58.78 British pence
(Figures from XE Live Exchange Rates)
A falling AUD is good for those companies that earn money overseas. However, it is a negative for our importers and consumers as it will increase prices of those goods.
By: Rachel Santos