The AUD has fallen for ‘good’ reasons – a fall in commodity prices and a narrowing in interest rate differentials. Both of these factors are likely to continue to weigh on the AUD as the global recession undermines commodity prices and the RBA cuts interest rates faster than most other central banks.
Support for this view is also derived from the sharp decline in bulk freight shipping rates which have fallen more than 85% from peak levels earlier this year.
That said, the AUD has fallen very sharply from the recent peak of US$0.9849 recorded in July.
As noted above, the AUD fall has been influenced by the sharp fall in commodity prices. Given the strong correlation between commodity prices and Australia’s terms of trade, there seems little doubt that Australia will suffer a sharp loss in income in the remainder of 2008 and into 2009.
The fall in the AUD is also acute on many cross rates. This has seen the TWI fall very sharply and is now at levels below the long run (20 year) average. On this basis, further AUD falls are likely to be somewhat limited..
0 responses so far ↓
There are no comments yet...Kick things off by filling out the form below.
You must log in to post a comment.