The Australian dollar, or the Aussie, is one of the best-performing currencies of the past decade, says Faz.net. It has gained 20% against the euro and 107% against the greenback, recently hitting a record high of $1.10. Chalk that up to “China and commodities euphoria”. Australia is a key source of raw materials for China. Relatively high and rising interest rates have also attracted investors, especially in the past two years, as Australia came through the global financial crisis largely unscathed.
But commodities euphoria has dwindled now that Chinese and global growth is easing. Further tightening measures by Beijing to squeeze out inflation are on the cards. The latest statement by the Royal Bank of Australia suggests that interest rates will stay on hold beyond August, longer than recently expected.
The Aussie is wildly overvalued against the greenback, says HSBC, and is also now the major currency most closely correlated with investor sentiment, eclipsing the Canadian dollar. So in “risk-off” conditions, when global risk aversion rises, it is vulnerable to “vicious” falls, reckons the bank. All this means that while the Aussie may have slid by around 3% from its record against the dollar, it probably has further to fall.