Global economic sentiment drives the Aussie dollar, just as it does everything else in financial markets. When the outlook is positive, the (potential) increase in demand for Australia's coal and minerals takes the currency higher. And vice versa. There was a bit of both last week, but mostly it was an extension of the AUD's retreat that cost it 6% of its sterling value in September. Nervousness about a bankrupt Greece – and about what that might mean for the world economy – has dampened demand for the Australian dollar.

Nor has the dollar received much help from the Australian ecostats. New home sales showed a 1.1% improvement in August but, after a cumulative fall of -16.2% in the preceding three months, it wasn’t much consolation. More worrying was a further one-point decline in the AiG performance of manufacturing index to 42.3. Anything below 50 means falling activity – and 42.3 is a worryingly low number, that increases the likelihood of an interest rate cut before the year is out.

From the UK perspective, it is worth bearing in mind the possibility of quantitative easing (QE) – if the Bank of England release further QE in the near future, this is likely to have an adverse effect on sterling

 

Further to the post above, The Bank of England today said it will inject a further £75bn into the UK economy through quantitative easing (QE). The Bank has already pumped £200bn into the economy by buying assets such as government bonds in an attempt to boost lending by commercial banks.

The last time QE took place was in 2009 – recently there have been calls for further QE to aid the fragile recovery as global growth has slackened - therefore this threatens the UK economy (e.g. exports).

Thanks

John

 

The Australian dollar has strengthened after it was reported in the Guardian newspaper that France and Germany were ready to boost the eurozone's rescue fund in a bid to address the public debt crisis.

The markets are very fragile currently, therefore any news is having an impact on currencies – in this case, the suggestion of a solution to the debt crisis sparked interest in the Australian dollar (making it strengthen).

Some positive data was also released which illustrated how the Australian economy will perform over the next few months – this also boosted the Aussie dollar.