Aussie Rises, as Australia Set to Weather the Global Slowdown

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Peter Lavelle - 11.10.2012

Exchange rate changes this week

  • Pound to Australian dollar: 1.5742 to 1.5583 (-1.01%)
  • US dollar to Australian dollar: 0.9765 to 0.9740 (-0.256%)
  • Euro to Australian dollar: 1.2713 to 1.2518 (-1.534%)

The Australian dollar is back on the front foot this week, following more than two months of losses against the UK pound and euro.

What explains this turnaround? Well, in part it's the continuing endurance of the Australian economy, at a time when a global slowdown is expected to take hold through the rest of this year and next.

However, just because the Australian dollar climbed this week, doesn't mean the currency is immune to global headwinds, and in fact most economists expect its downward slide to resume before long.

If you plan to emigrate to Australia then, that should be to your benefit, as buying Australian dollars becomes cheaper, giving you a higher total in your Aussie bank account.

What Affected the Australian Dollar This Week

Australia becomes world's 12th largest economy

One reason the Australian dollar climbed this week is that, according to the International Monetary Fund, Australia has overtaken Spain to become the world's twelfth largest economy, sending a huge signal about its economic progress since 2008.

Furthermore, the IMF was also complimentary about Australia economic prospects. In a report wherein it cut its 2012 global growth forecast -0.3% to 3.0%, it in fact raised Australia's outlook the same amount, to 3.3%. Given the global slowdown then, Australia continues to be exceptional.

Australian job creation outperforms

In addition, the Australian dollar rose this week, as Australia's economy added fourfold the number of jobs forecast in September. Australia added 14.5k roles last month, way above predictions for just 3.75k new jobs.

Moreover, these were high-quality roles, with the number of full-time jobs jumping 32.1k, while part-time jobs fell 17.7k. As CMC chief market strategist Michael McCarthy notes, "this is a minor positive for Australia."

What's Going to Happen to the Australian Dollar Next

The RBA will likely cut interest rates

However, as I mention, just because the Australian dollar climbed this week, doesn't mean it will do so in the future. This is because, though Australia's economy continues to outperform those of most countries, its outlook does look tougher.

Recently for instance, the Reserve Bank of Australia signalled that the mining boom will likely peak sooner and lower than forecast, making it important to find an alternative source of growth. Given that, the central bank cut interest rates -0.25% last week to 3.25%, and is widely tipped to do so again in November. That would see the Aussie fall.

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