Question on Interest Rates
- Thread starter Jeddles
- Start date
It's not hiking up as fast as the Fed fund rate in the US and USD is still the "safe haven" currency so when the Fed fund rate in the US is hiking up fast, people would want to invest in US-dollar denominated assets, presumably at least and that drives up the USD faster than AUD.
Also, the AUD is correlated to the price of base metals such as Copper, Aluminum, Zinc due to their mining dependent economy. Base metals happen to be tanking in price from their Feb peak.
Check out this graph of the AUDUSD (the blue line FXA) compared to base metal prices (the black line DBB):
Check out this graph of the AUDUSD (the blue line FXA) compared to base metal prices (the black line DBB):
Also many foreign loans are in USD. So as rates go up in USD, and you have to pay back in USD, it means the base local currently is under more pressure as people buy less USD with more local currency.
AUD, CAD are your "commodity" currencies, CH, JPY, USD, and to a lesser extend Nor, Kroner are the Safe havens. EUR has so many influences now, you got to ask someone who know the details on how that works.
But as other said, it is a relative thing. Most people think things are priced in currencies relative to commodities, but it is the opposite. The question is not how much a USD can buy of, say corn or copper, but how much USD can you get for that copper or corn. In this way currencies are "less real" than commodities.
AUD, CAD are your "commodity" currencies, CH, JPY, USD, and to a lesser extend Nor, Kroner are the Safe havens. EUR has so many influences now, you got to ask someone who know the details on how that works.
But as other said, it is a relative thing. Most people think things are priced in currencies relative to commodities, but it is the opposite. The question is not how much a USD can buy of, say corn or copper, but how much USD can you get for that copper or corn. In this way currencies are "less real" than commodities.
My short hand for the 5 major currency pairs with the USD:
AUD == Copper
CAD == Oil
JPY == no hope at all
GBP == see JPY
EUR == see JPY
CAD is the most stable at least since Oil stopping being negative. AUD is heavily dependend on China buying base metals from the Aussies.
BOJ (Japanese Central Bank) either believes inflation is about go down any second now or they are stuck with ZIRP (Zero Interest Rates Policy) forever.
Europe & UK are basically stuck since they destroyed their Bond markets back in 2012 thanks to that loser Draghi.
AUD == Copper
CAD == Oil
JPY == no hope at all
GBP == see JPY
EUR == see JPY
CAD is the most stable at least since Oil stopping being negative. AUD is heavily dependend on China buying base metals from the Aussies.
BOJ (Japanese Central Bank) either believes inflation is about go down any second now or they are stuck with ZIRP (Zero Interest Rates Policy) forever.
Europe & UK are basically stuck since they destroyed their Bond markets back in 2012 thanks to that loser Draghi.
ASX has been tanking for months so speculative capital has been closing their positions and exchanging AUD back into USD.
The receipts from commodities exports declined so there is less USD to be exchanged to AUD. Trade balance worsened and as a result of both AUD has been depreciating.
Interest rates would have to dramatically increase relatively to US rates to stop the speculative capital outflows but that would kill the economy so unlikely.
I recommend "Alchemy of finance" by G. Soros to learn how exchange rates work in practice.
There is hardly any inflation in Japan that's why boj is in not rush to hike. They are actually highly welcoming the uptick in prices after fighting deflation for decades.