The Australian Dollar Falls as RBA Extends Government Bond Purchases. We have all been watching the Australian Dollar continues to weaken against the US Dollar as the Bank of America and other global credit card companies decide to lower their interest rates. This has driven oil prices up in price as well, but it seems that the Aussies may be ready to take this one step further. The Australian Dollar is said to be “unofficially” going into a freefall, with traders expecting the currency to continue its downfall versus the US Dollar.
What does this mean? More consumer debt, lower commodity and crude oil prices, and possibly more tightening of the money supply in the United States, are some of the reactions in the forex markets. If the Federal Reserve raises interest rates, it will cause a massive shift in the pricing of currencies against the Aussie Dollar. The question is will this move by the central bank trigger a major reaction in the Aussie Dollar that reverses its recent trend and cause it to depreciate versus the US Dollar?
There are two ways for this move to occur. Either the Australian Dollar Falls as the US Dollar increases, or the economy contracts. There are at least two theories on how this will occur. One way is for the Australian Dollar to start increasing in value versus the US Dollar due to an increase in exports from Australia. The second possibility is that the Australian economy contracts due to lower gross domestic product growth (NGP) than expected.
There are some signs that the Australian dollar could head north in relation to the US Dollar. The RBA may be looking to re-floating the dollar prior to its interest rate decision. It may try to strengthen the Australian Dollar through a rate cut when it releases the official economic, quarterly figures. If this happens, it will be a major boon to the Australian economy. The RBA has been lowering rates for so long and will need to reverse this recent trend in order to stimulate the economy further.
The current issue that is circulating is whether or not the Australian Dollar will continue to weaken versus other currencies. This can be a big dilemma for investors everywhere. Many have made tremendous investments in the dollar which makes selling them if they drop any time soon a nearly impossible task. It seems that the longer this goes on, the more painful the hit will be on the economy. The recent weakness was caused by the Swiss Franc rising against the Australian Dollar.
Another issue that has been discussed recently is whether the Swiss Government would have the strength to stand behind their currency after the Swiss Franc began to lose ground against the Australian Dollar. If the Swiss National Bank decided to stop selling the franc, it could cause quite a big negative impact on the economy. The Swiss have a very strong economy, but their financial system depends largely on the United States Dollar.
In the last few years, many of the world’s largest banks have been caught conducting Forex scams. These scams have cost the shareholders thousands of dollars and thousands of jobs. Many large corporations took a financial loss as a result of these crimes, and many small businesses were never able to recover. These unfortunate events have hurt the confidence of the American People in the Forex market, and the market has begun to weaken. If the market continues to weaken more people will lose confidence in Forex trading, and the market will begin to recover slowly.
The Australian Dollar will continue to move up in the short term as the Swiss National Bank begins to support the Swiss Franc. In the long term the Swiss should be concerned about their currency, because they hold the world’s largest gold reserve. If the Australian Dollar drops too much, they may be forced to dump their gold – which they have already done with the New Zealand Dollar. If this occurs, gold prices will begin to increase worldwide, and the Swiss National Bank may find it difficult to protect their currency from these unfortunate events.