Since the start of this year, the Australian dollar (Aussie dollar) was climbing and stayed above 1.325 against Singapore dollar (1A$ = S$1.325) for most part. It touched 1.356 on 15 February, its highest for 2012. I was uncomfortable with a strong Aussie dollar and did not want to invest in currency-linked investment at that kind of exchange rate. I stayed in Singapore dollar until last Thursday, 22 March 2012.
Since the start of this month, Aussie dollar had been declining and it opened at 1.3223 on Thursday, a decline of 2.48% from its peak. This is more acceptable to me. What caught my attention on Thursday was that within the morning, Aussie dollar did a sharp drop and did not recover. The day trading range was 1.3228 to 1.3118, which has a spread of 0.83%. Thursday opened with 1.3223 and ended the day at 1.3148. This was a 0.59% decline, which is significant for a single day.
At end of the trading week, the Aussie dollar recovered slightly to end the weekend at 1.3216.
I read the news that Aussie dollar lost strength due mainly to economic weakness of China. Australia depends on China for iron ore and other commodity export to China. With potential slowdown in the economy of China this year, Australian export will be affected. Australian Gross Domestic Product (GDP) will take a hit this year. Foreign investment into Australia will slow since some funds will go elsewhere in search of other returns. Demand for Aussie dollar will wane when compared with first two months of the year when the poor showing of China economy had not hit the headlines then.
Will the recent correction stay or it is just a temporary blip? Will see. That is the difficulty of investing in foreign currencies.
Copyright © 2012, limkimtong for Living Investment
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