A$ down but will it stay down?

/in , /by

[vc_row][vc_column][vc_column_text]Here we go, here we go, here we go…

The Australian dollar is back in the news again for it has fallen below $0.73US late last month to $0.7278US — the lowest level since April 2009.

I can’t help but feel confused, because for all throughout the duration of the Greek tragic-comedy and the depression-inducing crash in China’s stockmarket, the AUD has remained not only above $0.74US but was fetching more than $0.76US.

Just when the Shanghai and Shenzhen exchanges stablise, China’s economy grows better than many expected and the Grexit was kicked three years further down the road, the AUD falls?

Not that there’s anything to complain about and the certainly RBA Governor Clenn Stevens would be pleased at this latest development. Gov Glenn would be happier with Black Rock’s prediction of a slide to around $0.70US before the New Year and Capitol Economics’ forecast of $0.65US by end-2016!

However, these are for reasons mostly recycled. Slowing China would take down commodity prices.

The rationale for the AUD’s fall is the divergence in monetary policy — with Greece and China now out of the way (or seemingly) — the Fed can now lift while RBA is expected to remain on hold, or, potentially cut further.

The AUD action — like we’ve seen over the past few months, is mainly a US dollar story, i.e, it depends on expectations of whether or not the Fed lifts, and when it does so.

Will it? Can it? Not if you ask the Federal Reserve Bank of New York.

Authors Mary Amiti and Tyler Bodine-Smith argue that “a 10% appreciation in one quarter shaves 0.5 percentage points off GDP growth over one year and an additional 0.2 percentage points in the following year if the strength of the dollar persists.”

Against major currencies, the US dollar has appreciated by 5.7% over the past three months and 21.3% over the past 12 months.

The bottom line is that the AUD’s fortune remains largely at the hands of the Fed and what it decides on interest rates.

— via the FINANCIAL STANDARD, Aug 11[/vc_column_text][/vc_column][/vc_row]