Despite some profit taking from US
dollar long positions yesterday, which have been profitable lately on the back
of a resurgent greenback, all indications are that the only way for the
Australian dollar is for it to go lower than where it is, even allowing for its
recent fall.
The major mover of any currency is
the differential in the core interest rate of the country to which it belongs
against those of its global counterparts. There is no sign of any attempt by
the Reserve bank of Australia to push up rates to meet the expected rise in the
USA. This will tend to remove the status of a high-yielding currency from the
Aussie.
The only consideration that has
prevented an even lower interest rate in Australia is a fear of a property
bubble, and now there are moves afoot to being in so-called macro-prudential
policies that would artificially restrict borrowing for property purposes,
especially by investors.
A major factor is the price of Iron
Ore, a very important export for Australia. The fall in the price of this commodity
is accelerating. This is because of, as previously noted (Australian
miners play hardball), the efforts of large scale miners to reduce competition
by means of a price war, allied to a drop in demand. But now there is another factor
in play. A Brazilian mining company, Vale, has built a number of extremely
large bulk carriers which have the capability, if they can resolve docking
issues in China, of further reducing the price of Iron Ore from South America,
which hitherto had been kept relatively high by shipping costs.
Australian
central bank still thinks it’s too high
And then there is the Reserve Bank of
Australia (RBA) itself. Central bankers do not always get what they desire in
terms of the value of their currencies, but they do have options open to them
and the fact the RBA wants a reduction in the value of the Aussie has to be
taken into account. In its statement following its decision to keep interest
rates unchanged last night (GMT terms), it reiterated that the exchange rate
remains high by historical standards, “…particularly given the further declines
in key commodity prices in recent months”. This was even as they acknowledged
the recent fall in the currency.
Currency pairs do not travel in a
straight line in terms of their exchange rates. However, the general trajectory
of the Australian dollar against its major counterparts is resolutely down.
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