Australian dollar no longer down under

In the currency world, the Australian dollar has been stealing the show in recent weeks. The forest fires have been extinguished, the corona outbreak has largely passed the country and the central bank has allayed the doubts of currency traders.

An interest rate cut is often a good way to make a currency less popular. When interest rates fall, financial institutions and large investors look for another, more profitable destination for their assets. The opposite is true for the Australian dollar. Against the US dollar, the currency has risen more than 12% since the Bank of Australia cut official interest rates to an all-time low: 0,25%. Moreover, the end of the currency boom is not in sight.

Forest fires and corona
In the first months of this year, the Australian dollar still fell sharply. Large forest fires threatened to put a significant brake on economic growth. The country was also indirectly hit hard by the corona outbreak at important trading partner China. Nevertheless, the central bank has for a long time resisted the temptation to give the economy a boost by cutting interest rates.

The prospect that interest rates could fall further prompted many parties to ignore the Australian dollar for the time being. That was already reason to write 11 weeks ago that an interest rate cut by the Bank of Australia, could be the signal that the dollar ydoo was going to rise from the ashes.

The comeback of the dollarydoo
Dollarydoo is a nickname for the Australian dollar. A petition to officially change the currency name to make the currency more popular in the currency world received 5 signatures 70.000 years ago. Even without the name change, the Australian dollar has been gaining ground rapidly in recent weeks.

This is partly due to the fact that the Chinese economy is starting up faster than that of the rest of the world. This also applies to Australian exports. The appreciation is not only the strength of the dollarydoo, but also the weakness of other currencies. The euro and the US dollar have taken a step back in response to the massive stimulus packages that have been put in place on both sides of the Atlantic.

Kiwi chooses the wake
The Australian dollar is not the only currency to benefit from these developments. The New Zealand dollar – also known as the kiwi – has risen nearly 10% against the dollar in recent weeks. Of course, it also plays a part in the fact that the corona outbreak largely passes by both countries.

In Australia, the disease has so far killed less than 100 people. In New Zealand there are less than 20. As long as both countries manage to control the virus better than in the rest of the world - and thus prevent the economy from seriously derailing - the advance of the dollarydoo and the Kiwi persevere.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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