The Australian Dollar is in a tailspin and there are multiple reasons for this. One of the most prominent is the slowing economy in China. That means fewer goods and services for Australian dollar traders and that means more people borrowing in the United States to pay for those goods and services. That means the Australian Dollar is trading away from its strength. This is creating a massive worldwide demand for the Aussie Dollar, making the break much harder for those that are riding the ride on the low interest rates in Australia.
As mentioned earlier, the Australian Dollar is in a tailspin as we speak. That means there is huge demand for the Australian Dollar as compared to other currencies. That means the supply is cut in half and the demand is nearly doubled. If you have been thinking about investing some money into the Aussie Dollar, the time is now. This is the exact opposite of what is happening in many of the other major markets around the world.
When this occurs, supply exceeds demand, causing the market to become unstable and therefore risk to head down. The Australian Dollar is already in a tailspin and this is just the beginning. In addition, if the United States goes into a recession, it won’t just affect the Aussie Dollar, but all global currencies. This can mean that the Australian Dollar can fall even further.
There are other reasons that the Australian Dollar is headed south, too. Global growth has slowed. For some time now, China has been buying up tons of gold and other precious metals. As the Chinese economy slows, so does the demand for gold and other precious metals. Now, even the European Union is cutting back on gold purchases.
Combine these factors with lower commodity prices and you have a pretty low risk to move the Australian Dollar down. The markets have been oversold and there is massive demand for the dollar. That combined with high oil and other commodity prices, which the United States has had problems with recently, and you have risk to move the Australian Dollar down. At the same time, there is tremendous optimism within the banking industry. People are buying more bonds and are pulling money out of the stock market because they think the economy will rebound.
All of this increases demand for the Australian Dollar. The Australian Dollar will likely head lower before it recovers. Right now, the markets are correcting. Right now, lower oil and commodity prices are hurting the United States. Over the longer run, the lower oil and commodity prices will cause the economy to expand.
If the United States begins to reverse the current trend and if oil and other commodities prices begin to rise, the Australian Dollar could become overvalued. Right now, the Aussie dollar is undervalued. However, if that happens the Aussie dollar could become overly powerful. The over-the-counter swap trading currencies is an indication that investors are worried about the over-valuation of the Australian Dollar. When that occurs the Australian Dollar can become too strong and hurt the United States economy.
On a long term basis, the Australian dollar is under-valued. However, short term the Aussie dollar can make a big move either way. That’s why everybody needs to be watching the Australian markets. Understanding when an over-the-counter swap occurs and understanding what that means is critical to being a savvy investor.
As the United States economy becomes stronger, the Australian dollar will likely be forced lower. Right now, the Aussie dollar is weak versus many other major currencies. That’s not a good place to be because it means that the Australian Dollar will be open to rapid move upward. If that occurs, it will cause an artificial rise in the Australian Dollar and that can put the economy into a tailspin.
For now, the Aussie dollar is stable relative to other currencies. This means that investors do not need to worry about the over-the-counter swap rate moving too far in either direction. However, if the US moves significantly lower and the Australian dollar moves up, then those same investors could be facing huge losses. If the over-the-counter swap rates start moving together in a hurry, this can cause a significant problem for the Aussie economy.
It is true that the Australian Dollar is relatively low right now. However, this does not mean that investors should not be worried about the possibility of the US dollar moving significantly lower. It is important to remember that when the US economy takes a hit, it can impact all the markets across the globe. The weaker the US dollar, the more countries will be affected and the more people will suffer when their currencies drop in response to this.