Pacific Peso Reaches 29 Year High!

For a currency that used to have the tag of the “Pacific Peso”, these are heady days for the Australian dollar. The external value of the dollar has reached a 29-year high as the Aussie dollar continues to appreciate on the global currency markets. Our Timetric charts follow the Australian dollar against the US dollar and also sterling.

This is a good mini case study on the factors that determine the value of a currency when it is allowed to float freely in foreign exchange markets

1/ The Australian economy is growing relatively strongly - increasing the expected returns from foreign investment in the economy

2/ Policy interest rates are relatively high (4.75%) - attracting inflows of hot money - short term banking flows that seek the best risk-adjusted rate of return

3/ Trade - the Australian economy has enjoyed a resurgence in the value of exports, notably from selling minerals and liquid natural gas to fast-growing developing countries in Asia

4/ Changing sentiment in the market - foreign exchange market speculators seem to be buying the Australian dollar as a safe haven investment instead of Japanese Yen

In simple terms the expected yield to investors prepared to buy Australian dollars is pretty high - for example compared to that on offer in Japan. This is causing a strong market demand for the Australian dollar

Australian Dollar / Sterling

Data from Timetric.

To view this graph, please install Adobe Flash Player.

Sterling vs Australian Dollar exchange rate, daily from Timetric

Australian Dollar / US Dollar

A fall in the chart here signifies an appreciation of the Australian dollar as less Australian dollars need to be sold to buy $1

Data from Timetric.

To view this graph, please install Adobe Flash Player.

Spot exchange rate, Australian Dollar into US $ from Timetric