Currency Markets Still Trending Heavily

When we look at the activity in financial market that has been seen in the early parts of this year, one of the most obvious trends that can be seen is in the relative strength of the US Dollar.  This has come at the expense of some of its most commonly traded counterparts.  It should be understood that any time one currency is purchased, it is exchanged for another.  So it one currency is rising, at least one other currency must be falling.  From the global perspective, a good deal of buying in the US Dollar has come in relation to the Euro.  And the Euro is now trading at its lowest levels in nearly 15 years when compared to the US Dollar.

But a good deal of US Dollar buying has also been tied to the Australian Dollar, and this has created some identifiable trends that do not appear to be ending any time soon.  “Over the last six months, the Australian Dollar has fallen to multi-year lows against the greenback,” said Michael Carney, markets analyst at Teach Me Trading.  “It is highly important for Australian investors to take note of these trends as they can have far-reaching repercussions for a wide variety of regional investments.”

If you consider your cash holding as having value on the world market, those holding onto Australian Dollars have been losing relative purchasing power as the currency has been in decline.  These declines might seem minimal for those that spend their money inside Australia itself.  But for anyone planning on making extensive travelling trips, or in purchasing large amounts of goods from foreign sources, the impact becomes much more obvious.  It is also important for investors that are looking to invest in the global markets.  When we look at things the relative perspective, items like gold, silver, and foreign stocks have become much more expensive over the last year.  And since these are assets that are typically used as vehicles for traditional investment, it should be clear that a declining Aussie Dollar has far-reaching effects that can negatively impact your overall net worth.

For these reasons, it makes sense to look at what exactly is happening in the Australian Dollar so that we can get a better sense of the current state of the market.  For the most part, the best way of accomplishing this is to compare the Australian Dollar to the US Dollar, as this is the currency that is used as its most common trading counterpart.

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AUD/USD – Australian Dollar vs. US Dollar

In the chart above, we can see that the downside pressure in the Aussie stems all the way back to last September.  This is when the steep declines against the Dollar really started to pick up steam, and we have seen very little change in this overall trend in the last six months.  To some extent, things have started to stabilize since the beginning of February and this could be a good indication that the broader trend is starting to reverse.  But until we start to see some meaningful rallies, there is no solid evidence to start expecting much higher valuations in the Australian Dollar.  For investors, this suggests that it is still a good idea to consider alternative assets for investment — at least until we start to see meaningful rallies in the currency.