Australian Dollar - Falling Chinese Exports

Put Pressure On The AUD

The Australian dollar might be about to come down! The question is, will it be a gentle decline or a crash landing?

For people planning to emigrate to Australia, a lower rate is definitely good news.

Peter Lavelle at foreign exchange specialist Pure FX - 17.02.2012.

Is the stellar rise in the Australian dollar against both the pound and euro about to end?

This is the rumour that is beginning to circulate among economists and traders in the past fortnight, for several reasons.

If you are thinking about starting a new life in Australia, it makes this an important time to watch the exchange rates very closely!

For one, though the Australian dollar has not been stable against the pound and euro this past month, it has not made consistent gains.

In the past, the AUD might have risen and fallen according to how the crisis in Europe looked and depending on risk appetite, but it ultimately won ground.

But in recent weeks, there has been no overall change in the Australian dollar to pound (for instance) exchange rate.

This is immediately indicative that its lightning run might be about to end.

Why then is the AUD no longer climbing?

One reason might be the foreign exchange equivalent of gravity.

The Australian dollar is overvalued between 35.0% and 40.0% according to indexes including The Economist Big Mac index, making it one of the most expensive currencies in the world.

Investors realise this and, though Australia might remain an attractive place to park cash, it factors into their purchasing decisions.

Simply put, there is only so long demand can remain so strong for something so expensive.

To put it another way, what comes up must come down.

In addition, the deteriorating outlook in China is bringing the AUD down too. Exports from China have shrunk considerably in the past six months, as Europe in particular (China's biggest export market) goes into recession, reducing overall demand. Given that China in turn is the chief consumer of Australian commodities, this has therefore cooled to some extent the furious mining boom.

This of course does not mean the Australian economy is about to crash (by no means at all!)

But it does mean the outlook is moderating, and that in turn could reduce AUD demand.

So what should you do if you're thinking of starting a new life in Australia?

As I mention, watch the exchange rates closely! There is of course no guarantee the Australian dollar is about to tumble.

But there could quite shortly be an opportunity to change Australian dollars at a cheaper rate than has been available in a long time. That is worth looking out for!

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