58 | AUSTRALIA
2.1 1.8 1.5 1.2 0.9 0.6 0.3 0
2012 2011 2010
FX
Average exchange rate AUD/USD Avg exchange rate
www.opp.org.uk | JULY & AUGUST 2012 2009 2008 2007 2006 2005 2004 Average 2012 AUD/USD 1.04 Average 1.02 1
0.98 0.96 0.94 0.92
0.9
0.88 0.86
September August July June May April March Daily exchange rate - May 2012 AUD/USD 1.308 Exchange rate
1.028 1.018 1.008 0.998 0.988 0.978 0.968 0.958 0.948 0.938 0.928
31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 February January 2003 2002 2001 2000
again. And Europe has shown that you can still have a banking crisis without deregulation if the basic principles of lending are ignored. The problem with a banking crisis is that the banks have to rebuild their balance sheets, which increases the time it takes for economies to recover. The Australians have therefore avoided the need to reduce interest rates and increase liquidity through a program of quantitative easing. Quantitative easing is totally untested as to its long term effects but in the short term the effect is to undermine a countries currency. Over the last couple of years the Australian dollar has been trading in a fairly narrow range against the euro, US$ and sterling. As we all know the situation in the Western world hasn’t been getting better, in fact it’s recently been getting a lot worse as the southern states of the Eurozone need increasing bailouts to help them fund their government debt. Greece has been the centre of attention for most of this year but Spain has come to the fore in the last month or so as its debts, both bank and government, become unmanageable.
So you would have thought the Australian dollar would have kept on
“the Auusie dollar has been trading in a narrow range against the euro, the US dollar and sterling”
appreciating but the fact that the whole world is now one great market means this isn’t the case. A fall in business confi dence in the Western world feeds through to Australia and perhaps more importantly China. As mentioned the demand for commodities by China has been a key driver in boosting the Australian economy and recent events have seen growth of the Chinese economy slow somewhat. The current hope is that the Chinese economy suffers a “soft” rather than “hard” landing, thereby avoiding a hugely detrimental effect on the demand for Australian commodities and in turn on its economy. We have seen the Australian Reserve Bank begin to reduce interest rates as it tries to keep the economy on an even keel. Where to next for the Australian
dollar? There has been some recent short term weakness as we see heightened risk aversion and quite a few market commentators view the Australian dollar as being over valued. This seems to be supported by the Big Mac index which says that the cost of a Big Mac in Australia sits at #6 when it comes to cost while the Eurozone is at #10, the US at #11 and the UK at #16. However, I think it is going to take quite a signifi cant event for things to change as the overall situation in
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