The AUD is now on par with SGD. Why is it so?
Depreciating AUD and her Commodity Economy
The Australian economy is tied to the Chinese economy. When China sneezes, Australia catches a cold.
Australia is a commodity(raw material/agriculture) driven economy and exports roughly 30% of her iron-ore and coal to China.
Will AUD drop further? Yes, according to wonder kid Ong Liang Wei.
Lowering Interest Rates
With the stock market and real estate under pressure, the spillover effect would kick in soon. In order to protect the mining industry, the Reserve Bank of Australia(RBA) had to slash interest rates and allow the currency to weaken.
Exports are Cheaper
The intention is to make Australia competitive and refocus from mining to non-mining sectors like manufacturing.
Lowering interest rates is to stimulate overseas demand and inflate earning by mining companies. In addition, commodity prices are demand driven and worldwide cooling of demand will have adverse effects on the Australian economy. Lowering interest rates help to protect domestic industries.
Also, with Federal Reserves going to increase interest rates, capital hike is going to take place soon and this will affect economy that is reliant on a single product for export.
Jobs growth is slowing and countries will be fighting to get market share or protecting their existing markets.
To summarize, a tired Chinese growth, falling commodity prices = existing situation.
Opposition friends, tell me the correlation between AUD and SGD and I might just vote for you. Don’t say I not fair
Jamie – Rise of The Strawberry Generation (RTSN)
(Liang Wei contributed to this post and you can FB him if you’re interested in economics.)