While the Australian Dollar (AUD) has been depreciating for a while now, recent statistics have suggested that this decline is now accelerating. The National Australia Bank’s monthly business survey for November revealed that business confidence was also at its lowest point since mid-2013, and alongside other economic conditions this has had a severe impact on the AUD. As a result of this, the forecast for the dollar has plummeted as it is set to each 0.75 USD by the end of 2016.
The Decline of the AUS and how it will Impact on the World Economy
Given the nature of the AUS and the economy as a whole, this decline will have a far-reaching impact. The national currency is relatively unique in that its strength is strongly linked to its exposure in Asian markets, where the demand for Australian commodities and natural produce fluctuates wildly. When the demand for Australia’s bountiful natural resources rises in places such as China, India and Japan, the value of the AUD soars. When the demand falls, however, the value rapidly declines and this has a detrimental impact on international trade volumes.
There is also a prominent link between the AUD and the currency of Singapore, as these currencies are often traded in pairs and their values are therefore inextricably linked. As a result of this, the value of the Singapore Dollar (SGD) has soared against the AUD in recent times, and while it has risen consistently since 2012 the recent rate of growth has rocketed during throughout the course of the current year. While a sudden rise in the demand for natural resources or the publication of positive economic data could arrest this trend, the declining AUD is reflecting favourably on the SGD and offering investors a fresh and interesting perspective.
The Last Word on the Decline of the AUD: An Investors View
The exposure of the AUD in Asia and the fluctuation of demand for commodities have created a volatile and counter-cyclical currency, leaving is distant from other major economies such as the U.S. and UK. This level of independence within the global economy has both benefits and significant disadvantages, but during times of hardship it can leave the AUD isolated and vulnerable to sudden market shifts and the demand of other nations.
From an investor’s perspective, this provides an interesting conundrum. While the AUD usually offers a relatively safe currency or forex trading bet during times of global economic prosperity, its volatility makes it one to avoid during more austere times. So long as you have knowledge of global market trends and the level of demand for Australian commodities, you should be able to trade efficiently and in a way that maximises profitability.
