Stock Markets Impacted By Aussie Dollar

by MBM Research MBM Research

Stock market trends and forex analysis and this is likely to continue as long as interest rates remain low throughout the Australian region. Market investors will likely have more trading opportunities in the coming months ahead, and this is why it is important to select a forex broker that has substantial research available in the field.

The Australian economy has gone without a recession for 26 straight years and is still going strong, but the same can't be said about the performance of its currency. Official data on Wednesday pointed to Australia starting 2018 on a strong note: Its gross domestic product expanded by 3.1 percent year-over-year in the first quarter, handily beating forecasts and avoiding a recession yet again.

The Australian dollar rose 0.67 percent against the greenback after the GDP data release to 0.7666 per U.S. dollar — its strongest in more than a month. However, the currency is still down by 1.76 percent since the start of the year and 5.46 percent off its highest level in 2018 that was achieved at the end of January. The performance of the currency can largely be attributed to two main factors: Commodity prices and local interest rates, according to National Australia Bank's global head of research, Peter Jolly. "The Australian dollar has its closest relationship to commodity prices," Jolly told CNBC. He explained that the country is a major exporter of natural resources such as iron ore and coal, which have seen prices come down this year. That means demand for the currency has been hit.

Rising Australian Economy

Australia first quarter GDP shows economy continues to evolve, and the Australian dollar rose 0.67 percent against the greenback after the GDP data release to 0.7666 per U.S. dollar — its strongest in more than a month. However, the currency is still down by 1.76 percent since the start of the year and 5.46 percent off its highest level in 2018 that was achieved at the end of January.

The performance of the currency can largely be attributed to two main factors: Commodity prices and local interest rates, according to National Australia Bank's global head of research, Peter Jolly. "The Australian dollar has its closest relationship to commodity prices," Jolly told CNBC. He explained that the country is a major exporter of natural resources such as iron ore and coal, which have seen prices come down this year. That means demand for the currency has been hit.

Reserve Bank of Australia Monetary Policy

The Reserve Bank of Australia, the country's central bank, left interest rates unchanged for the 22nd month on Tuesday. On the other hand, the U.S. Federal Reserve is widely expected to announce a rate hike next week — widening the gap between the two countries. Aussie dollar is vulnerable in US-China trade spat Australia's close economic links to China have made its local dollar one of the most vulnerable currencies in the ongoing tensions between Beijing and Washington, experts said.

In addition, "Australia's reliance on coal and iron ore exports for use in global steelmaking only reinforces the prospect of Australian dollar vulnerability" as President Donald Trump's administration has announced tariffs on steel and aluminium imports, according to a South China Morning Post commentary.