Yahoo Finance Aussie Dollar: What goes up…
The old saying, what goes up must come down, looks to finally be holding true for the Australian dollar.
One of the world's best performing currencies in recent years and remaining stubbornly strong in 2013, the Aussie dollar looks to finally be showing some weakness against the greenback.
As Wayne Swan delivered his federal budget, the Aussie dollar slipped below parity with the US dollar to be trading under US99¢, its lowest level since November 2010.
The local currency had briefly dipped below $US1 after the Reserve Bank’s announcement last week that it would cut the official cash rate by 0.25 per cent to 2.75 per cent.
Currency converter $AUD = $US
Analysts say the strength in the greenback as the outlook for the U.S. economy improves and concerns about growth in China, Australia's most important trading partner, explain the change of fortunes for the Australian dollar.
Just prior to the Reserve Bank’s May meeting, billionaire investor George Soros was rumoured to be holding a $US1 billion Aussie short position in the lead up to the rate cut announcement.
Following the rate cut decision, reports had Soros walking away with a cool $US19 million windfall as local currency dropped by more than 2 cents.
Making the story even more impressive, it appears Soros pulled off the bet three times with three different foreign exchange brokers in Asia, therefore tripling his profits to around $60 million.
Where to from here
"If the U.S. dollar rallies some more, the Aussie dollar could suffer the most since it gained more than most currencies from weakness in the dollar," said Sean Callow, senior currency strategist at Westpac reports CNBC.
Callow said the Aussie was vulnerable to further near-term weakness and expected the currency to fall to around $0.96 by June 2014, implying a decline of about 3 percent from current levels.
Despite it pull-back in recent weeks, the Aussie dollar is still up some 60 per cent from where it traded in early 2009 as the world emerged from the global financial crisis.
The main reason the Aussie has been so strong is because of the weakness in rest of the global economy and subsequent near zero interests rates around the world. Even with the recent cuts, our interest rates remain the envy of investors looking to park their cash and our economy is still being seen as something of a safe haven for the way we’ve been largely insulated from turmoil abroad. Even so, signs are appearing that the resilient currency is falling out of favour with investors.
"I don't think the Aussie dollar is about to collapse, but it should move back some more from here," Greg Gibbs, senior currency strategist at Royal Bank of Scotland told CNBC.
Gibbs said the Aussie dollar was also proving sensitive to Chinese economic news and that data out of the world's second largest economy could prove key to the currency's near-term direction.
