Australian Dollar Fluctuations Hurting The Economy?
Despite more stability in the Chinese market and reviving oil prices, the Australian dollar has continued its downward decline – falling by over 8 percent against the US dollar since April 21, 2016.
Like many other currencies across the world, the Australian dollar came under fresh selling pressure after the US Federal Reserve Federal Open Market Committee released the minutes of their meeting in April – revealing a US rate hike prospect in June – much more than any market predicted.
The odds of a 0.25 percent hike in the Fed funds rate leaped to 30 percent from 15 percent following the release of the minutes of the meeting. Because of this release, the US treasury income spiked along with the US dollar – placing tremendous pressure on risk assets. The post-release announcement saw the Australian dollar fall below a vital technical point for the first time after March 2 against the US dollar.
Most currency experts believe that this is temporary and several fundamental factors are in place to support the strength of the Australian dollar. The Australian economy remains strong and global commodity prices are recovering. Australia’s current account deficit is also improving, so the USD isn’t expected to get too strong in comparison to the AUD.
Fundamentally, the support for the Australian dollar remains strong, so many experts don’t expect more dramatic declines against the US dollar. The Reserve Bank of Australia appears to be reluctant to lower interest rates again for the time being until the situation stabilises.
Apart from this announcement, the Australian dollar has also been battling other factors. Although the rate of unemployment was declared to have been steady in April, the number of jobs created rose by much less than expectations from the market. In fact, most jobs that were created were only part time, while full-time employment fell. Despite this, the Australian dollar is expected to stabilise in the near term.
Despite taking a huge hit against the US dollar, the Australian dollar has held firm against several other peers – except the British pound. The dollar weakened following a poll that showed 55 percent respondents preferring to remain in the European Union before the June Brexit referendum, while 37 percent preferred leaving.
While these factors may place temporary pressure and volatility on the Australian dollar, it is expected to remain stable over the long haul.