Making Sense Of The Aussie Dollar Down Under

March 13, 2015 0 Comments

Australia has been hailed at the go to example of economic stability, more or less. Being that it has a $16 dollar an hour minimum wage and an expanding economy… That’s it really. Most people don’t really understand fundamental issues going on in the economic region. Employment remains relatively weak and business exports in the region seem to be declining.

In addition to ongoing trends in employment, Australian Jobs Report printed weaker than expected figures. Annualized employment grew at a rate of 0.3% but that growth seems to be deteriorating. While the unemployment rate did manage to remain steady at 6.3%, it’s only masking the problem (similar to US economic problems). The economy has expanded below its potential growth rate for six of the past seven years.
Not to mention exports have fallen in the region. China, which is a major exporting partner of Australia, is particular one of the reasons why the Aussies have lived in an economic bubble for the better part of 20 years. Thanks largely to the Chinese appetite Australian-mined iron ore, coal, and other commodities. However, there has been a significant drop in demand for the nation’s commodities. This hurts net capital inflows to the nation, as well as employment growth in the region, resulting in higher unemployment.

The only thing the Reserve Bank of Australian has done to combat this was lowering interest rates. In 2013, the RBA cut rates from 2.75% to 2.50%, and in 2014 they cut rates again to 2.25%. The lower rates have helped drive down the Aussie dollar, which which lost more than 25% of its value since 2013. Economist are split on whether or not the RBA will conduct some sort of stimulus expansion or the possibility of another rate cut of 25 basis points. Either way, the trend downward is likely to continue.
Near-term resistance is in the $0.7831area, marked by the 23.6% Fibonacci expansion and a falling trend line. There is also a break above that on a daily closing basis exposing the 14.6% level at $0.7912. The rest of the trade remains open for plenty of downside potential, and there is much profit to be made considering the trends of the Aussie Dollar.  

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