With the recent economic recession in the US, Australia’s currency has fallen against the U.S. dollar and is now trading at a lower level against the AUD than the previous year’s level. This article discusses the economic outlook for Australia’s currency and discusses the key AUD/USD levels to watch out for in the near future.
The Australian economy is still growing strongly but has been slowing in recent months. As unemployment figures have come out, there has been a huge rise in unemployment – but a huge drop in the jobless rate in the last few months, which indicates that the economic outlook is improving significantly.
Although the Australian dollar still trades well below its levels prior to the global economic downturn, it is likely to rise again once the new unemployment figures are released, and then begin to rise again towards its previous levels. When the Australian dollar rises, it typically does so rapidly – as it did after the global recession, before falling again and making a low point return to the previous levels. A key factor when investing in the Australian currency is to watch for the price of gold and precious metals.
In the recent time period, there were two major events that saw the price of gold soar in value – one being the global financial crisis, and the second was the US federal budget. Both events increased demand for precious metals and saw gold prices rise dramatically. While the US government has released a budget that is good news for the Australian economy, this doesn’t necessarily mean that the US economy will improve, or that the Australian dollar will fall.
It is important to understand that central banks around the world have a very different view on the global economy – so in the current economic climate, it may be better to remain a safe haven, with lower-risk investments. It may not be as easy to obtain a good spot on the Australian dollar, but if you can obtain one, you should have no problem securing a good investment portfolio of precious metals.
When trading the Australian dollar against the U.S. dollar, it is important to understand that gold and silver are the most widely traded commodities in the Australian economy. They have been a reliable hedge in times of financial difficulty, and many countries, including Australia, have chosen to buy them as a hedge against inflation. In fact, many of the countries that were heavily involved in the last global recession are buying precious metals as an effort to stop inflation from taking hold.
It is also important to know that gold is a highly liquid asset, and can be easily purchased and sold, so that investors can diversify their portfolios to ensure that they are still profitable in the long term. With the weak Australian dollar, gold and silver prices are likely to be stronger over the coming months, and as a result the Australian dollar is likely to rise.
As the Australian dollar continues to rise against the U.S. dollar, it may be best to focus your investments on other safe-haven assets – like gold and silver, which are both highly liquid, can be quickly converted into cash, and are likely to be much more liquid when the economy improves. In addition, it is important to know that these are two of the most stable currencies, which offer a steady return – but with a high degree of volatility.
The currency pair that the Australian dollar is expected to break against is the British pound, and the Euro, as well as the Swiss franc and the Japanese Yen. This is largely due to the uncertainty over the European financial market, and because many of the major banks are investing in gold and silver for their hedging positions. In the case that one of these three currencies fails, the Australian dollar is unlikely to suffer.
Because the Australian dollar remains stable compared to other global currencies, it is likely to stay relatively strong against the US dollar in the short-term. Therefore, a savvy investor would be well advised to buy Australian dollars and hold onto them until the price of gold rises, before selling them at a profit to lock-in some profit.
One thing is for certain – the Australian dollar remains an attractive investment option as long-term, and with the weak global economy, the potential for strong growth prospects for Australia is very strong. However, in the event that inflation continues, the strong Australian dollar is likely to provide support to an investment portfolio that offers some protection against it.