If you are a keen follower of business news, you must have noticed that the Australian dollar has surged in recent times and has held its own against the US dollar even under adverse business environments prevailing across the world. While in 2015 just after the commodity crash AUD touched new lows of seventy cents, the rise thereafter has been strong and steady. It has been mainly attributed to the bounce back of iron ore and coal prices which had been stagnant after the boom of the last decade levelled off in 2012. This in turn has resulted in boosting export prices and national incomes, two crucial indices of a strong economy.
However, even this steady correlation has gone for a toss in the last couple of weeks. AUD has risen by over 8% and is now holding at 80 cents. This is all the more surprising as there has been currently a sharp decline in commodity prices with coal and iron ore dropping by about 10%. What then is the reason for the rise in AUD against USD?
There are basically two reasons for this. The first is that in spite of the fall in commodity prices, the Australian domestic economy continues to be vibrant, more than what was predicted by the experts. Paul Dales from Capital Economics told ABC some time back that one indicator of a strong economy was the rise in full-time jobs in the recent month.
However, this is just the Australian side of the story. Events in the USA have not been encouraging and have shown marked weaknesses, especially in terms of inflation figures. Hence the falling greenback has indirectly contributed to a strong AUD. However, it is expected that FED will take measures to bring interest rates to standard levels thereby strengthening the USD. By end 2018, experts predict AUD to trade against USD at more realistic levels of 70 to 75 cents.