The Australian Dollar has fallen to a four-week low against a basket of its peers after the country posted a larger than expected widening in its trade deficit.
The shock increase in the nation’s trade deficit has stoked speculation that the Reserve Bank of Australia will be forced to implement further interest rate cuts. The Australian dollar skidded to $1.0206, its lowest since Sept 6, having easily knocked out options at $1.0250. Charts show a break below $1.0200 opening the way to $1.0165.
The widening of the trade gap comes after a slump in the price for key commodities, such as iron ore and coal, key exports for the country. It was this combined with a continuing slowdown from Australia’s biggest trade partner China that saw the deficit rise to a whopping $2.03 billion deficit. The figure marks the worst performance since March 2008 and was far wider than anyone predicted. Economists had been expecting the deficit to be only $685 million.
“Until destocking in steel and related industries ends in China, iron-ore exports in Australia are likely to remain under pressure,” Citi economist Paul Brennan said.
“The partial rebound in iron-ore prices in recent weeks is a positive, but the large drop to below 50 in the Chinese PMI for iron and steel industry imports in September suggest demand for iron-ore exports remains fundamentally soft.”
The Australian currency has taken a battering over recent weeks as concerns continue to mount over the health of China’s economy and the slowdown of the Australian mining boom.
“The Australian dollar has found very few friends in the currency market over the last few days, except for some bargain hunters thinking the $A’s quick fall from grace has made it a good value proposition at the current levels,” said Tim Waterer, a dealer at CMC Markets.
Since yesterdays surprise decision by the Bank to cut interest rates by 25 basis points to 3.25% the ‘Aussie’ has fallen by a cent and a half. It’s certainly a good time for anyone in the UK to plan for a trip to Australia as the British Pound continues to strengthen against the ‘Aussie’.
The Pound to Euro exchange rate is currently trading at 1.2466
The Pound to US Dollar exchange rate is currently trading at 1.6120
The Pound to Australian Dollar exchange rate is currently trading at 1.5771
The Euro to US Dollar exchange rate is currently trading at 1.2927
The Euro to Pound exchange rate is currently trading at 0.8019
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