The Australian dollar is the hot currency of late, having been steadily on the rise against a basket of currencies. The recent economic data of late has been healthy to say the least, with consumer inflation set to rise following on from increases in business and consumer confidence.
The real cherry on top was the vast amounts of positive data that was released last night from China, both import and export data showed healthy gains for the year on year figures and a 12B increase in the Trade Balance.
Australia is heavily linked to the world’s second largest economy, as a manufacturing based economy when production is high in China, Iron Ore (which is mined and exported from Australia to China) is high in demand and helps to strengthen the Australian Dollar.
Another reason for the Australian Dollars recent surge comes from the frailties in the American economy.
This week Janet Yellen’s soft tone towards further interest reduced investor appetite in the American dollar and caused the USD to weaken.
What was once perceived as a risky investment, the AUD is now in the spotlight for investors. High interest rates mean that investors have pulled their funds from the Dollar and put their funds into the Australian Dollar in light of a strong economy and positive economic forecast for the up and coming months, otherwise known as carry trading.
One thing to take note of for anyone looking at selling Australian dollars to buy foreign currency is that a strong currency will mean importers from other countries paying more for their produce, and as a commodity or export based economy, this could potentially hurt the economy. The Reserve Bank of Australia may have to intervene if the Australian dollar continues to soar.
With three officials from the Reserve due to speak next week, I wouldn’t be surprised to see a little jawboning (deliberately talking down the currency) to try and slow the recent Aussie’s charge.