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Many people tend to judge the strength of the Australian dollar (AUD) by its value against the euro or the US dollar. This comparison is not a real indicator of the value of the Australian dollar. A falling currency means more AUD are required to purchase foreign currency. The Australian dollar as at January 7, 2019, stands at 0.71 USD. The sharp declines in stocks and oil price, the continued oscillating market and weak currency in China have led to the latest depreciation in the currency. After the foreign exchange markets led the Australian dollar to a 10-year low against the USD, the AUD fell more than 6 percent in the last week against the Japanese Yen and almost the same against the USD. On signs of weak growth in Europe, both the British pound and the Euro fell more than 1 percent against the USD. In the last days around Christmas, the currency closed above US71c and recovered almost 5.5 percent on Saturday against its US counterpart. This appreciation was attributed to the halt in the current interest rate increase cycle by Jerome Powell who is the Federal Reserve Chairman. Interestingly the fed has raised rates since late 2005 around nine times. The possible downturn in the housing market and the consumption consequences has also impacted the weakening of the Australian dollar. Adding to the woes was the weak data from China which emphasizes the reliance of the currency on the global activities. A piercing drop in prices for both copper and aluminum in London trading is not helping sentiment for the Australian dollar as it was down more than 2 percent last week. As the policymakers see two more rate hikes in 2019, the US markets went down again. The most important factor in determining the event risk for AUD is the US and China trade war discussion which is to take place this month. The Australian dollar which is falling since the start of 2018 seems to be stabilizing. After the rising trade hopes and softening, interest rate outlook and the support from the People’s Bank of China which lowered the bank’s reserve requirements has helped the Australian Dollar. The AUD has been trading between the 0.65-0.70 range earlier but is now comfortably above the 0.70 levels, and it becomes difficult to say that it can fall further as it has already touched 10-years low and considering the optimism in 2019 it should stay around the current levels at least for the first quarter of 2019.
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