The Aussie dollar is in the doldrums trading at lows not seen in the past 12 months against the US dollar.
It had been riding the commodities boom but has been brought back to earth as traders liquidate investments in commodities and favour long US dollar trades. Commodity prices have been tumbling as the global economy slows with the London Metal Exchange index falling 15% since March.
The news that the Reserve Bank of Australia cut interest rates for the first time in nearly 7 years has had the flow on effect of making the Australian dollar less attractive to investors seeking higher-yielding currencies. Futures markets are also factoring in a further two rate cuts this calendar year, with markets pricing interest rates at 6% in May 2009.
After trading within striking distance of parity with the US dollar in July, the Australian dollar now has a lot of ground to make up before reaching the US$0.90 level again. Has the Aussie dollar sell off been overdone?
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08/09/2008