Is the Australian Dollar still attractive to investors?
The Australian Dollar had a good year in 2016, particularly against the pound. The question is will this trend continue? Personally,I think Sterling is chronically undervalued against the Australian Dollar. The only reason GBP/AUD sits just below 1.70 is due to the electorates vote to leave the EU.
I think the Australian economy could be in for a rough time this year. This is due to several factors. Firstly, we have to look at the the Australian Dollar’s appeal to an investor. With high rates of interest and Australia having a AAA credit rating the currency has been very attractive in the past, however below par economic data could cause Australia to lose this rating. The mining sector has been particularly hard hit and unemployment is on the rise.
The situation in the US will not help matters. The US economy is in a state of growth and the majority of economic data is positive. Now the uncertainty surrounding the Presidency has been removed I would expect the US Dollar to move from strength to strength. The FED have indicated there could be as many as three rate hikes in 2017 following the recent hike in December. The US Dollar is now a safer haven than the Australian Dollar and also has higher returns than before.
It would be wise to keep an eye on Chinese growth statistics if you have a trade involving the Australian Dollar. China is the largest importer of Australian goods and raw materials and as such Chinese data can heavily influence Australian Dollar exchange rates. Although China’s growth is still very healthy it is dwindling compared to previous years and I would expect growth to continue to slow, especially if Trump gets his way on restricting trade between the US and China.
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