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Is Now the Time to Invest in the Australian Dollar?
Following the financial crisis, the Australian dollar outperformed the major currencies. This situation occurred mainly because of demand from Australia’s largest trading partner China, Australia’s then booming mining industry, and relatively stable interest rates. However, this year, the Australian dollar recently hit a three year low after dropping a dramatic 15 percent since the start of this year.
Australian Interest Rates Decrease
In a recent policy announcement, the Reserve Bank of Australia (RBA) announced that it planned to decrease interest rates to 2.5 per cent - a record low. The RBA made this announcement in an effort to boost Australia’s economic outlook and it was the eighth interest rate cut since November of 2011. Additionally, as unemployment and retail sales are relatively weak, the likelihood of another interest rate decrease in the future is likely.
Australian Dollar Increases in Value
Upon the release of the interest rate cut, the Australian dollar increased in value when compared with other currencies. Additionally, while the unemployment rate in Australia remained the same at 5.7 per cent in July, China released data stating that imports and exports increased in July - after a decline in this area in June. More specifically, China's industrial production growth increased to a five-month high of 9.7 percent year-on-year in July. Additionally, the imports increased by 10.9 percent, and is the largest annual increase in the past three months. In turn, this situation may indicate an increase in demand for Australia’s exports from China. Consequently, the Australian dollar has been increasing in value since these announcements This trend appears likely to continue in the coming weeks.
Prediction: It may be a good idea to acknowledge this trend and invest in the Australian dollar to take advantage of these short term gains. What do you think?