Australian dollar (A$)

The relatively high value of the Australian dollar had been driven in part by the strong demand for its exports and the interest rate spread between those in Australia compared with the U.S., Eurozone and Japan. While the yen was on the borrowing end of carry trade transactions, the Australian dollar was on the investing side of the equation because of the higher yields available there. With the onset of the credit crunch, funds were repatriated as investors became risk averse and ditched carry trade positions. Since hitting a low in January 2009, the Australian dollar continued to rise for the most part as investors came to terms with risk and as equities climbed.

 

Interest rates remain high here in contrast to other economies which lured investors seeking yield. The Reserve Bank of Australia's seven rate increases had enhanced the currency's global appeal. The currency weakened somewhat after the RBA lowered interest rates in 2012 and as the Eurozone sovereign debt crisis sent investors looking for safety in the yen and the U.S. dollar. Investors shed risk as worries about Europe escalated once again and the Australia dollar dropped in value against its major counterparts.

 

 

However, after the Reserve Bank of Australia cut its key interest rate at its May 2012 meeting, the currency dropped to below parity with the US dollar as investors anticipated a curtailment of the Federal Reserve's bond buying program. The currency initially was hit by expectations of further rate cuts by the RBA and the weakening Chinese economy. China is a main customer of Australia's resources. The RBA lowered its policy cash rate at its February 2015 and again in May, but said that although the currency has come down, the Aussie remains high. Governor Stevens and Board members continue to actively talk down the currency. The RBA left policy unchanged in June and July — but continued to talk the Aussie down.