By Ashley Smith – The Australian and New Zealand Dollars were among the top performers versus the U.S Dollar this year with the AUD advancing 27% against the greenback and the NZD 25%. This rise is due to the large difference in interest rates between the south pacific currencies and the USD. While the U.S interest rates are near zero, Australia’s lowest interest rate during the recession was 3% and New Zealand’s rate is 2.5%. Australia was among the first western countries to begin raising interest rates, hiking them a record 3 consecutive times since October to 3.75%.
The Australian economy has performed relatively well during the recession, assisted mostly by exports in commodities, particularly to China. While the New Zealand economy has not fared as well, the currency has benefited from the growth in AUD as the two currencies tend to move in the same direction. The two currencies have also benefited from the continuous rise in equity markets, as the Aussie and Kiwi are among the favorite higher yielding currencies.
The two currencies have come under much pressure in the past month as the USD rallied, after a surge of positive economic data from the U.S increased investors’ expectations that the Federal Reserve will raise interest rates sooner than expected. However, the steep decline of the two currencies appears to have been exaggerated and a correction has already begun taking place. As economic conditions continue to improve in the two countries, boosted by demand from China and the expectation for further interest rate hikes by the two Central Banks mount, the outlook for 2010 for the south Pacific Currencies remains optimistic.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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