Struggling global economies continue to drag upon their interventionist levers, with most desperately seeking to force their currencies lower, to new competitive positions.
While this is occurring in Europe, Japan and South Korea, in some respects the various programs are masking one of the key drivers. The reinvigoration of the US economy and the renewed strength of its currency is a major factor in current developments.
Domestically, the focus is on the Australian Dollar to the US Dollar exchange rate, although that’s not the only rate of interest. Despite the relevance of other exchange rates, it’s the US Dollar that sparks most interest because it is the world’s primary transactional medium.
As the chart from the FWPA Data Dashboard shows, the Australian Dollar has depreciated by a sharp 16.5% against the US Dollar over the 2014-15 Financial Year to the end of January. But it is also evident that there has been decline (4.1%) against the Japanese Yen over the same period.
However, its January that stands out most over the short timeframe in the chart. The strengthening of the US Dollar over the month resulted in the Australian Dollar depreciating a very steep 5.1% from the end of December 2014 to the end of January 2015.
Fig 4
For further details, go to the FWPA Data Dashboard.
Demonstrating that individual countries and regions have had mixed success managing their currencies, against the Euro, the Australian Dollar has declined just 1.3% since the start of the 2014-15 financial year. Of course, the Euro exchange rate has ranged quite widely over the last three years, beset by the region’s major economic woes.
The EUR/AUD exchange rate has cycled through a period when the value of the Euro was very low, to a period of reasonable stability where some suggest it is now reasonably valued.
Expectations are that the USD/AUD exchange rate will sink further in coming months. With the European Union and Japan both trying to devalue their own currencies, more and more interest is set to turn to rates other than the greenback.
