The Australian Dollar has been enjoying exceptional growth
beginning from the early global recovery days, boosted by strong
fundamentals which were supported by strong exports to China and as
well as six interest rate hikes since October 2009.
The Australian Dollar (
) gained 27% in the 12 months through April 30, being one of the
top performers among the world's 16 most-traded currencies.
However, since May the AUD has pared about a third of its gains,
struggling to stay above 85.00 US cents and continuing to drop even
as other riskier currencies, such as the EUR and GBP, gain
The trigger for the decline was the onset of the Euro-Zone debt
crisis, followed by the recent signs of stagnation in the Chinese
and U.S economy. As China is one of Australia's largest markets, it
is heavily dependent on Chinese economic growth and recovery.
Signs of weakness in the Australian economy began to appear as
well with recent publications of poor retail sales data and housing
figures. Employment, however, continues to remain strong. While the
Reserve Bank of Australia (
) has so far maintained its stance that Australia is expected to
enjoy a robust recovery, signs of pessimism among investors
appeared flowing the recent interest increase which caused an
unexpected drop in the AUD.
Markets now seem to feel comfortable with an interest rate of
4.5%, when only a few months ago the expectation was for a 5.5% by
the middle of 2011.
Is the recent drop in the AUD simply general market nervousness
regarding riskier assets and commodity-linked currencies, or signs
that the RBA has reached a point where it has to reverse
The latter scenario seems quite unlikely as the Australian
economy, despite the recent discouraging data, remains relatively
robust with strong fundamentals. It may mean, nonetheless, that a
more prolonged pause in additional interest rate hikes may be
expected as the full affects of monetary tightening
At the moment, all eyes are on the RBA, which holds its monthly
policy meeting on Tuesday, for outlook and guidance on future
Looking at the chart one can see that the AUD has been
experiencing a strong downtrend against currencies which are
perceived as risky. In fact, the New Zealand Dollar (
) is often overshadowed by the more robust AUD as the Australian
economy tends to perform better than its neighbor.
- Looking at the chart, a strong downward trend is evident
- It is also apparent that the RSI for the pair has been
floating in the oversold territory.
- Furthermore, the MACD for the pair is at the lower
AUD/NZD - Weekly Chart
For more on the AUD,