Tuesday, March 17, 2009

The fall of the Australian currency

The fall of the Australian currency

Australian dollar decreased to its 1985 year level in relation to USD after the investors decreased holdings of high profitable assets due to the opinion that the global economy will experience recession.

The currency of New Zealand as well as Australian dollar decreased in relation to the Japanese yen after investors cut the carry trades that are their source of borrowing currency on low interest rates and investing them with an aim to get considerable profit. Asian stock also experienced certain decrease throughout this week that made traders suppose that the central banks of the US, European Union and Japan will decrease their interest rates.

According to Paul Milton a chief forex dealer at Societe Generale SA in Sydney the Australian currency depended up to two factors that are outlook of risk aversion and increased demand for USD.

So the Australian currency decreased to the point of 77.89 US cents at Sydney trades. Furthermore it has even decreased for a short period of time to the 77.77 US cents in relation to USD throughout its Asian trades today.

As for the New Zealand currency it has also decreased and reached the point of 66.33 US cents that is 3.3 percent lower then its last week level.

Besides Australian dollar decreased also in relation to the Yen and now it is at the level of 82.03 in relation to the Yen. However its lowest point in relation to Japanese currency was reached on May 2005 when it was at the point of 81 yen. The currency of New Zealand also decreased in relation to the Yen by 3.9 percent to the point of 69.88 yen.

According to Milton the Australian dollar may even reach 75 US cents level due to $700 billion financial aid that is supposed to increase demand for the USD.

Volatility index

The decrease the Australian and New Zealand currencies experienced took place after the growth of the VIX volatility index to 45.26 that is the measure of Chicago Board Options Exchange that shows expectations for the changes of the stock market price as well as risk aversion. As for the MSCI Asia Pacific index it has decreased by 7.5 percent.

According to Ned Rumpeltin a currency strategist at Morgan Stanley there probably will be further falls of the New Zealand currency due to instability of the forex markets, low risk appetite and rather weak economy of the country.

As for the interest rates they are at 7 percent and 7.5 percent level in the Australia and New Zealand correspondingly. As for Japan and US their interest rates are 0.5 and 2 percent correspondingly.

Due to experts opinion the Reserve Bank of the Australia may decrease it interest rates to 6.5 level in the beginning of the October.

Bonds and Commodities

The fall of the Australian and New Zealand currencies was also caused by the decreased gold and oil prices that are considerable part of the country’s exports. The same happened with Lumber also that is also takes the considerable part of the New Zealand's export.

And finally about the bonds. Australian government bonds increased but the two-year swap rate of the New Zealand decreased to the point

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