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Australian dollar brushes new 7 year low
Published on 11.01.2016 14:37

The Australian dollar is making a slight recovery today, after coming perilously close to a new 7-year low as the Chinese government unexpectedly strengthened the local currency after a round of devaluations.

At 11.15pm (GMT) the Aussie dollar was trading at US69.97c after falling as low as US69.27c in early Asian trade.

After a string of devaluations last week, the Peoples bank of China unexpectedly strengthened the wan today catching the market off guard, with many expecting the opposite, after last week’s 10 percent fall in the Chinese stockmarket.

The news probably saved the Australian dollar from falling below the US69c mark, a level not seen since 2009.

Some analysts are noting that the US65c – US70c may be the new norm for the Aussie dollar now on the back of US economic strength as well as weak commodity prices.

When Iron ore prices, Australia’s biggest commodity were over US150 a tonne and the US economy was still recovering from the global financial crisis the Aussie dollar’s strength, in particular with the US dollar was somewhat justified.

Fast forward to 2016 and we have Iron ore sitting at around US$40 a tonne, and a US economy forging ahead as shown by last month’s interest rate hike from the US Federal Reserve.

All of these factors place the Aussie dollar in a whole new light with further weakness inevitable as the year folds out.


Andrew Masters

Analyst

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