China and its impact on the Aussie Dollar

AUDGBP: Australian Dollar Weakens in Worst COVID-19 Day Yet

There are a number of reasons to why the Australian Dollar has outperformed the majority of most majors on the currency markets, notably against the pound and euro being just a couple of cents from record highs against both. Some of these reasons include the higher yield offered in Australia making it attractive to investors through the use of what is commonly known as a ‘carry trade’ – this being where investors borrow money in a low yielding currency such as the JPY, CHF, or GBP and invest into currencies with the potential to offer greater returns such as the AUD, NZD or ZAR. The trade can be risky as obviously currency fluctuations have to be taken into account, however it has been part of the reason demand for the Aussie has been high in recent years.

Other reasons simply include the fact the Australian economy has outperformed much of the developed world, but probably the main reason the dollar has risen to prominence has been the accelerated growth from China and the demand for Australia’s raw materials. Australia’s mining sector is its main source of income and as long as the demand from China remains the AUD is likely to stay strong. However any negative sentiment form China can significantly knock the value of the Aussie, just look at the trend in February. The AUD hit the 1.45 mark against the pound with little signs of stopping, suddenly China’s growth forecasts were significantly reduced and GDP fell below 10% for the first time in a long time. Suddenly within the space of a matter of weeks the dollar was back to 1.63 – an 11% swing, very costly if you are on the wrong side of this. My point here is, particularly for AUD sellers is to not get too greedy – any sign that China is slowing (just yesterday Chinese industrial figures were 0.6% lower than expected and we have seen the AUD weaken nearly 0.5% as a result) and the AUD is likley slip from its current highs. For now it still all seems rosey but keep on your toes and keep in contact with your broker to avoid any nasty surprises.

To discuss my views and opinions in more detail then please contact me. I can be reached by email on mgv@currencies.co.uk or call the office on 01494 787478 and ask for Mike. I am here to give a totally impartial view on the markets to help you make an informed decision as when best to execute your trade. As a speacialist broker we have access to multiple sources to offer a number of tailor made contracts and commercial rates of exchange significantly undercutting the high street banks. To benefit and to discuss the service in more detail please email Mike on mgv@currencies.co.uk