Australia: Australian dollar hits multi-year low in early February
February 18, 2015
The Australian dollar (AUD) has been uninterruptedly losing value against the US dollar since July 2014. On 3 February, the AUD hit a low of 0.77 USD per AUD, which was 5.8% weaker than on the same day of the previous month and 12.5% weaker on an annual basis. Moreover, this figure represents the Australian currency’s lowest value since May 2009. From 4 February onward, the Australian dollar has remained stable at 0.78 USD per AUD.
The depreciation of the Australian dollar comes amid a strengthening of the U.S. dollar, resulting from solid economic growth in the U.S. and the ECB’s recent announcement that it would loosen its monetary policy, as well as a weakening outlook for the Australian economy. The loss of momentum in the Australian economy during the second half of 2014 led the Reserve Bank of Australia (RBA) to reduce the cash rate to 2.25% at its 3 February meeting, in an attempt to boost economic growth going forward. The cut in the policy rate was the first change the Bank has introduced since August 2013, and came after a significant number of central banks had eased their policy rates in recent months in response to the effect of lower global oil prices.
Despite the fact that the AUD currently stands at a record low against the greenback, the RBA stated at its February meeting that the Australian dollar still remains above most estimates of its fundamental value, in spite of having weakened markedly against the U.S. dollar. Moreover, the Bank pointed out in its accompanying statement that, “members agreed that a lower exchange rate was likely to be needed to achieve balanced growth in the economy.”
Author: Cecilia Simkievich, Economist