Aussie dollar to weaken
The Aussie dollar is likely to remain under pressure for the time being as commodity prices continue to fall and Australia’s interest rate premium narrows.
The price of Australia’s main commodity exports iron ore and coal have a strong influence on the value of the Australian dollar. Recently, iron ore prices have fallen to about $65 a tonne – a big drop compared to the $90 a tonne they reached late last year and earlier this year.
Even when pricing hit $90, the Australian dollar didn’t get much above 75 cents. This doesn’t paint a strengthening outlook for the Australian Dollar in the current environment.
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Published on 10 May 17
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The Aussie dollar is likely to remain under pressure for the time being as commodity prices continue to fall and Australia’s interest rate premium narrows.
The price of Australia’s main commodity exports iron ore and coal have a strong influence on the value of the Australian dollar. Recently, iron ore prices have fallen to about $65 a tonne – a big drop compared to the $90 a tonne they reached late last year and earlier this year.
Even when pricing hit $90, the Australian dollar didn’t get much above 75 cents. This doesn’t paint a strengthening outlook for the Australian Dollar in the current environment.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
The price of Australia’s main commodity exports iron ore and coal have a strong influence on the value of the Australian dollar. Recently, iron ore prices have fallen to about $65 a tonne – a big drop compared to the $90 a tonne they reached late last year and earlier this year.
Even when pricing hit $90, the Australian dollar didn’t get much above 75 cents. This doesn’t paint a strengthening outlook for the Australian Dollar in the current environment.
As for interest rates, the rebound in underlying inflation in the first quarter of this year means the Reserve Bank of Australia has little room to cut rates below the current record low of 1.5%.
We expect the US Fed will raise rates three more times this year which would take their policy rate above that in Australia for the first time since 2001. Another four Fed hikes in 2018 would leave it roughly 1 percentage point higher than the RBA rate.
Turning to France.
Emmanuel Macron’s victory in the French Presidential election may prompt a further rally in European equities and the Euro. The Euro may strengthen to around $1.12 against the US dollar, although we are not convinced it would stay strong for long. This, of course, would be good for European stocks.
The next point of contemplation for European markets will be June’s parliamentary elections in France.
Currently markets do seem to like and sit and wait for the next political or market event creating low levels of market volatility. The low level of volatility in the market doesn’t mean that investors are being complacent.
Also, low volatility does not imply that a sudden move is around the corner. Take the mid-1990s for example, when low volatility did not stop equity prices from rising steadily for years as the bubble inflated.
Finally - falling commodity prices seemed to be linked to China’s economic performance rather than the focus on world growth. China’s local funding costs have been rising over recent weeks reducing the supply of capital to purchase stockpiles.