US Bounce-Back Takes A Bite Out of The Australian Dollar

With better US economic data and less Fed stimulus the Australian dollar has lost its oomph. What lies ahead for the Aussie currency?

Peter Lavelle - 16.08.2012

Exchange Rate Changes between the 9th to 16th of August 2012:

  • GBPAUD: 1.4846 to 1.4925 (+0.532%)
  • EURAUD: 1.1635 to 1.1701. (+0.567%)
  • USDAUD: 0.9464 to 0.9541. (+0.814%) (-1.36%)

What's Affected the Exchange Rate This Week?

It doesn't seem to happen all that often these days, but this week the Australian dollar finds itself on the back foot against key rivals including the US dollar, pound and euro.

This of course is fantastic news for people planning to relocate to Australia, because it means when you exchange currencies you end up with a higher Australian dollar total. That in turn makes buying Australian property less costly, and means you enjoy higher savings in your Australian bank account.

Why then has the Australian dollar lost out? It's all down to upbeat US economic data, and the feeling that, as it improves, there's less chance the Federal Reserve will announce more stimulus.

For instance, retail sales in the States jumped 0.8% last month, ahead of a +0.3% forecast. This is the highest figure since March and, as Joe Manimbo of Western Union Business Solutions notes, is: "a welcome sign for the economy." Elsewhere, US industrial production reached +0.6% in July, its highest figure since March.

As David Scutt, currency trader at Arab Bank, notes, this encouraging data means "traders are now definitely questioning whether we'll see any further QE at all" from the Federal Reserve. After all, if the US economy is improving under its own steam, it doesn't need Fed support.

That cuts the chances of the Fed injecting billions of dollars into the economy, which would benefit not just the US, but the global economy too. Hence why the fortunes of the Australian dollar are tied to the Fed.

What's Going to Happen Next

So the Australian dollar has lost across the board this week. However, this isn't to say the antipode currency is down and out. Far from it. Because, in fact, this week aside, the US dollar, UK pound and euro have all been sliding against the AUD since early June.

This reflects the fact that Australia remains a AAA Stable-rated country growing at a fast pace, compared to the US, UK and Eurozone, which boast none of those things. That's encouraging investors to opt for the Aussie, almost regardless of whether Australia's economy is going up or down.

Given that, it's more than possible the Australian dollar will shake off this week's losses, and continue to gain ground.

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