The value of the Aussie dollar is pushing higher today against the US dollar.
At time of writing, AUD is trading at 72.14 cents of a US dollar. This is an over 30% increase from the March lows.
What’s driving the Aussie dollar?
One of the things that has an effect on the exchange rate is the interest rate.
In Australia, interest rates are stuck at a low 0.25%.
The US Federal Reserve left rates unchanged yesterday during their meeting at 0–0.25% yesterday. But with cases rising and the economy weakening there’s already more expectation that the Fed could bring in more stimulus.
Rates could very well go negative.
It’s very possible we will also see more unconventional stimulus from the Fed.
Since the pandemic started, the US Federal Reserve has flooded the system with an unprecedented amount of money. Their balance sheet has ballooned from around US$4 trillion in March to US$7 trillion.
The expectation that the Fed will bring on more stimulus and with low growth and a resurgence in cases…all of this is weakening the US dollar.
Another factor helping the Aussie dollar is the price of iron ore.
Iron ore is Australia’s biggest export. We are also the largest iron ore exporting country in the world, with most of those exports going to China.
China’s steel production has stayed strong during the pandemic. You can read more on that here.
There’s also the fact that Brazilian iron ore producer Vale has struggled to maintain operations through the pandemic. Brazil is the second largest exporter of iron ore globally.
This has pushed iron ore prices higher along with the AUD.
The US dollar is diving
It’s not just the AUD that is strengthening against the US dollar, the USD is weakening against other major currencies.
The US Dollar Index follows the value of the US dollar against a handful of other major currencies. So far since March, it has lost close to 10%.
And the US dollar is also weakening against gold. Year-to-date the price of gold against the US dollar has gained close to 30%.
Will the AUD keep going higher against the US dollar or lower? Editor Greg Canavan from The Rum Rebellion tackles this question on his free report ‘Will the Aussie Dollar Enjoy a Post-Pandemic Resurgence?’
You can read all the details here.