- Posted by Hieu on March 8, 2015 in Global Economies Global Money Transfer
Australia is world famous for its hot climate, exotic animals and Ayers Rock. But what about its currency – the Australian Dollar (AUD)? Like all currencies, the Australian currency exchange rate is extremely volatile – for instance falling against the Philippine Peso (PHP), but at the same time rising against the rupee (INR). We’re going to take a look at these movements over recent months and make some brief predictions regarding the AUD for the coming year.
Chinese Demand and its Effect on the AUD
Recently, China has been a great driver of global economic growth, growing at 7% or more per year for well over a decade. Due to its size, swings in the Chinese economy greatly affect the economies of the rest of the world because of a dependency on China’s manufacturing ability and China’s growing role as a major consumer of the world’s products. But China’s growth has begun to show signs of slowing.
As a strong mining country, due to rich, natural deposits of precious materials, this decrease in demand has hit Australia where it hurts. Such a slowdown decreases demand for Australian exports, such as iron ore, and decreases the demand for Australian Dollars. This causes the dollar to depreciate and is one factor aiding the falling AUD value.
China’s growth looks reasonably set to remain lower than it has been in the past, and this could easily keep the AUD where it is, or even lower. On the other hand, a low AUD makes Australia’s exports cheaper for overseas buyers (using USD, GBP, PHP etc). This could increase demand for exports – as they appear technically cheaper than their overseas alternatives.
AUD to Rupee – Why The Rise?
While Australia may be facing low demand for exports, India is facing much bigger problems. High inflation, decreasing investor confidence and a high trade deficit have decreased the demand for rupees to a larger degree than the AUD. This has caused the INR value to sink further than the AUD, allowing the Australian dollar to rise against the rupee.
AUD to PHP – Fighting Against a Booming Economy
The Philippines, and the PHP, have hit a boom due to high growth. A figure of 7% growth has been achieved through high levels of overseas remittance, low inflation (which investors love the safety of) and powerful manufacturing and servicing sectors. These factors have made the Philippines more attractive to overseas buyers/investors, in terms of exports and investments, and have driven up the demand for the PHP as a result, unlike to the AUD.
Such high growth is unsustainable historically however, so it is unlikely that it will continue at this level in coming years, particularly considering China’s (previously mentioned) slowdown. Having said this, growth in the Philippines is likely to continue, at lower levels, and it will likely be some time before the AUD makes any real gain against the PHP.
Overall, the situation surrounding the Australian Dollar is unlikely to change radically in 2015. It would be surprising to see any significant changes in the AUD/INR and AUD/PHP rates in particular, given that these rates are affected by relatively large changes in large economies.
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