Greek Tragedies Aside, Aussie Down in Currency Wars

At the end of June, the Australian Dollar was weakening against the US Dollar at a faster rate than the decline of the Euro, despite the problems with which Europe is beset. Although there have been other developments since the end of the financial year, Australia’s exposure to the US Dollar, the softening of the domestic position and the strength of the US Dollar have brought the USD rate down faster than the EUR rate.

As the chart below displays, at the end of June 2015, the Australian Dollar was trading at USD0.7680 up 0.2% on the end of May 2015. However, it was trading at EUR0.6866 down 1.9% over the same period. 


As the chart shows, the Australian Dollar has tracked higher against the Japanese Yen, largely a result of the efforts to depreciate the Japanese currency, rather than as a consequence of the Australian economy or trading position.

The Australian Dollar has stumbled lower in recent trading, amidst the challenges of addressing the European growth conundrum and the specific problems of the Greek debt and bailout. Although by no means a consensus, latest commentary has included suggestions the exchange rate with the US Dollar will fall to USD0.65 by the end of 2015. However, the majority of views now appear to be settled at around USD0.72 over that timeframe.

On 17th July 2015, the RBA recorded the Australian Dollar was exchanging at USD0.7414, JPY91.98 and EUR68.12. Underscoring the differential path of the currency, the Eurozone’s challenges have forced the Australian Dollar rate higher, while it still continues to decline against the US Dollar.

The world economy appears to be in a period of currency uncertainty and challenges. The likelihood therefore is that most currencies will continue to depreciate against the US Dollar.

For further details, go to the FWPA Data Dashboard.