Three drivers of a lower Aussie

AMP Capital

AMP Capital

The $A has more downside and is being driven lower by a combination of : 1. Stronger $US - undergoing a loner term upswing supported by relative strength in the US economy. Fed being closer to monetary tightening in contrast to Europe, Japan and China. 2. Secular downtrend in commodity prices thanks to surging supply and lower demand in combination with the rising value of the $US, as commodities are priced in $US. 3. The relative performance of the Australian economy has deteriorated and this is seeing the interest rate differential in favour of the $A decline, making it relatively less attractive to park money in Australia as part of the “carry trade”. The AUD is likely to fall to around $US0.70 by year end and then into the $US0.60s as part of an overshoot on the downside to make up for the damage done by the strong $A years. The downtrend in the $A will help the Australian economy and share market, but highlights the case for global investments denominated in foreign currencies. For the full article the (VIEW LINK)


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