Have you been following the foreign exchange market lately?
I’ve the habit of looking at it daily to check what the Aussie dollar will fetch you abroad…even though we can’t travel right now.
Anyway, the AUD exchange rates are telling quite a story…
The US dollar is diving
A currency’s movements are usually measured against the value of another currency. And lately, the Aussie dollar has been strengthening against the US dollar.
One of the factors that affect exchange rates is interest rates.
In Australia, the RBA left interest rates unchanged yesterday during their meeting, at a low 0.25%. While both the US and the Fed have rates at similar lows, the US dollar has been weakening against the AUD lately.
One thing pushing the AUD higher has been iron ore.
Iron ore is Australia’s biggest export. We are also the largest iron ore exporting country in the world, with most of those exports going to China. The fact that China’s demand for iron ore and that iron ore prices have stayed strong has helped drive the Aussie dollar higher.
The USD pushed down a notch lower against the AUD last week after the Fed announced they would be keeping interest rates low for a while, while letting inflation run higher.
But the fact is that the US dollar has been moving lower against the AUD, but also several other currencies. The US Dollar Index, which follows the value of the US dollar against a handful of other major currencies, has so far dropped 10% since March.
First recession in three decades
The Australian dollar weakened against the US dollar today after Australia ended their lucky economic streak and officially entered into a recession.
GDP fell by 7% in the June quarter after also recording a 0.3% decline in March.
Yet something interesting is happening to both currencies when you look at them against gold, they’ve both been weakening.
Year-to-date the price of gold against the US dollar has gained close to 30%. Against the AUD, gold has gained close to 24% for the year.
That’s why it’s a good idea to have some gold. If you are interested in buying some physical gold, editor Shae Russell has developed a step-by-step guide on how to buy gold.
To access all the details, click here.
Best,
Selva Freigedo
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