The Australian exchange rate has remained strong and steady against many of its major trading partners in recent months. The last few years have seen the AUD strengthen significantly against the US Dollar – but is the strength of the Aussie Dollar destined to last much longer? In this post we’ll look at some of the factors influencing the strength of the AUD, with a particular view to the likely futures of the AUD – GBP and NZD – AUD exchange rates.
Factors Influencing the Australian Exchange Rate
As with any currency there are dozens of factors that can affect its value, but let’s zoom in on two of the biggest domestic influences on the value of the AUD: mining, and the recent budget announcements.
The Mining Economy
Mining has been the driving force of the Australian economy for some time now and this boom has been one of the major contributing factors to the near-50% appreciation in the value of the AUD in trade weighted terms over the past 10 years. This boom has been pinned in large part to the rapidly growing demand for commodities in the expanding Chinese economy – the China-driven rise in demand for Australian assets and drove up anticipated returns on investments made in the Australian resources sector.
The Recent Budget and Business Confidence
The recent budget announcements made by the new Tony Abbott-led government, caused a drop in consumer confidence – but, importantly, this was not coupled with a drop in business confidence and this is a likely factor for explaining the continued steadiness of the AUD.
Exchange Rate – AUD to GBP
While news events have recently impacted the AUD – GBP exchange rate – the Malaysian Airlines crash in Ukraine, for example, which drove some investors to move money into safer assets – the most telling influences on the exchange rate between these two currencies for 2014 are yet to come. Amongst them is Australia’s inflation statistics, with the Australian Consumer Price Index due for publication on July the 23rd. On the British side, the potential for an interest rate hike could see a strengthening of the Pound.
NZD to AUD Exchange Rate
NZ and Australia are strong, close trading partners and the exchange rate between the two has remained highly stable over a long period. One of the biggest factors influencing the NZD to AUD exchange rate is interest rates, but the anticipated rise to 3.5% expected to be announced by the RBNZ on Thursday is unlikely to create any major surprises in exchange rates. However, recent weakening in prices in one of NZ’s most important industries – dairy – may continue to impact the NZD. The USD also looks set to rally strongly in the second half of 2014 which may lead to a slight decline in the value of the Australian Dollar.
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