Cross Currency Pairs – What’s happening with AUD versus the rest of the world?
This weekly update specialises in the cross pairs involving the AUD. (Currency cross’s that do not involve the USD)
This includes the; AUDEUR, AUDGBP, AUDNZD, AUDCAD, & AUDZAR.
In the details below, we will see the main indicators for fundamental AUD strength remain the same:
· High interest rates in Australia compared to the rest of the world attracts consolidation of monies here. ( Europe 0.75%, UK 0.5%, U.S · AAA rated Government Bonds vs. other nations around the world
· Australia is dependent on Asian growth and in particular China. Up to this point, it has been very positive for Australian prospects comparatively, (Perhaps at a lesser degree, if China continues to slow).
· This has underpinned Australian strength and is a major cause of the AUD being so strong against all its peers, not just the USD.
In short, sudden shocks that cause the AUD to be sold off are the result of outside events rather than unexpected poor data from Australia.
· Fear of a full blown debt crisis as a result of mismanaged budgets in Europe. The bailouts, and confidence in Europe’s banking system, have all been negative. ( AUD weakness, & EUR weakness)
· On the other side, positive events, meetings, announcements that sure up confidence in Europe boosts the AUD.
· In the U.S, positive data from corporate earnings results, housing, manufacturing and employment gives the AUD strength.
· Positive Chinese data such as, economic growth, manufacturing and business confidence strengthens the AUD, and vice versa, because China is Australia’s top trading partner.
For a relevant pair please scroll to the relevant section.
AUDEUR
All Time High 0.8614 (22nd August 2012) inverse 1.1609
All Time Low 0.4722 (6th October 2008) inverse 2.1177
2011 Average ( approx) 0.7479
2012 Average ( approx) 0.8036
Major Factors Affecting the Cross
EUR influences:
· Massive debt problems in Europe that cause a economic recession, high unemployment, depressed investment, decreased confidence and spending. This all translates into EUR weakness.
· Insolvency of individual nations and banks in Europe removes confidence entirely, causing a run on Europe’s banks and currency. This caused the EUR to be sold off heavily, and consequently strengthen the AUDEUR cross to all time highs.
AUDGBP
All Time High 0.6870 (15th February 2012) inverse 1.4556
All Time Low 0.3294 (24th September 2001) inverse 3.0358
2011 Average ( approx) 0.6440
2012 Average ( approx) 0.6520
Major Factors Affecting the Cross
GBP influences
· A double dip recession in the UK has weakened the GBP.
· Rebalancing of the UK budget to rein in deficits (GBP up or down depending on view of decisions by market, but fundamentally over time positive for GBP strength, against the AUD)
AUDNZD
All Time High 1.3793 (7th March 2011)
All Time Low 1.0421 (5th December 2005)
2011 Average ( approx) 1.3088
2012 Average ( approx) 1.2838
Major Factors Affecting the Cross
NZD influences
· NZD interest rates are 2.5%, slightly lower than Australia. This means the NZD is strong against all its peers, but moderately weak against the AUD.
· NZ dairy exports are a big part of the NZ economy. Milk solids and other soft commodity prices affect the earnings potential of the country. Currently, soft commodity prices are at, or near, all time highs.
· The Christchurch earthquake initially caused NZD weakness as confidence and economic damage were assessed and interest rates fell. However recently, $30b of insurance money and spending is starting to flow into increased confidence and employment as the big rebuild commences.
AUDCAD
All Time High 1.0782 (6th February 2012)
All Time Low 0.7165 (6th October 2008)
2011 Average ( approx) 1.0178
2012 Average ( approx) 1.0365
Major Factors Affecting the Cross
CAD influences:
· Canada is the 10th largest economy in the world and is inherently tied in a marriage to the U.S. The U.S. soaks up 78% of Canada’s exports and Canada imports 52% of its good from the U.S. Therefore when the U.S struggles so does Canada, and vice versa.
· More recently, Canada’s exports have increased markedly to China. This is a result of increased orders that have been going to its massive oil and forestry industries.
· Canada is a stable democracy with solid reserves of natural resources like Australia; however, its coupling with the U.S has affected the country more so in terms of economic development. Canada has arguably come out of recession in better condition than the U.S with lower unemployment and economic growth higher. Because of its link with the US, the CAD remains weak in a historical sense against the AUD.
AUDZAR
All Time High 8.8084 ( 13th September 2012)
All Time Low 4.3099 (25th December 2004)
2011 Average ( approx) 7.5555
2012 Average ( approx) 8.3506
Major Factors Affecting the cross
ZAR influencers
· Interest rates in S.A are currently 5.0%
· Unemployment is around 25%
· It is the biggest economy in Africa, accounting for about 25% of the continent’s GDP.
· South Africa, although having stable growth prospects (3.5%+ per year), suffers from high unemployment, high levels of crime and inequality. These issues have affected investment and growth in what potentially could be a very fast growing economy.
· South Africa has strong mining, agriculture, and service sectors.
· The ZAR has weakened against all crosses over the last 10 years and heavily against the AUD.
Matthew Dawe
Corporate Dealer – World First