CURRENCY WATCH The Australian economy
FX and expectations about the AUD by Dieter Merz
At the beginning of April 2013 the AUD started to weaken substantially against other major currencies including USD, EUR and JPY. What is the rationale behind this decline?
percent of overall Australian exports, dropped back into recession and deflation. As a consequence the demand for commodities and goods went down.
Chart.1 Daily chart AUD/USD
During the first decade of the 2000s the economic situation in Australia improved substantially and steadily. Te only interruption of this process was the financial crisis in 2008/2009. Te unemployment rate went down, inflation as well, as yields came down and growth was quite stable. Tese positive figures were based on rising commodity prices because of huge Chinese demand. In 2012, Australia exported 25% of their products to China. We also have to keep in mind that the bullish commodity price trend came to an end at the beginning of 2011, at a time when discussions started about a substantial slowdown in growth rates in the Chinese economy. On top of this, the second largest export destination Japan, with a share of 18.8
Chart. 2 Weekly chart AUD/USD
But let’s look ahead. Te situation in the Chinese economy remains in a slowdown mode at a time when China has to change its business model from an export driven economy to a more domestic market oriented economy. Terefore we are not expecting a substantial pick up in the purchase of commodities in the near future.
Te second largest export destination, Japan, under the lead of the new Prime Minister Shinzo Abe, is trying to stimulate its economy with the so called “Abenomics”. Tis has recently led to substantial JPY weakness which is pushing import prices higher e.g. for oil, industrial metals and coal. Tis should act as a drag especially on industrial metals, however
FX TRADER MAGAZINE July - September 2013 47
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