By TraderVox.com
Looking at a chart of the AUD/USD you will realize that since January the AUD has been growing stronger. In fact in under just about 3 months the AUD/USD has gained almost a 1000 pips!
Analysts have been left bemused by this recent rally of the AUD and some say it is just a matter of overvaluation on the part of traders. We try to examine what really is keeping the AUD as strong as it has been and where this trend is expected to continue.
1. Influence of foreign investment:
The mining industry in Australia nowadays is nothing but booming and seriously. This has led many foreign investors to increase their demand for the AUD. Of course, we know this is logical as in order to buy stocks and create the capital they need to partake in what they want, they first of all need to have the AUD.
Moreover there is increased focus by Japanese investors especially to partake in Australia’s mortgage market. This huge and obvious inflow of capital into Australia is considered one of the main reasons why the AUD has been on the up and if this trend of foreign investment in Australia continues you can expect the AUD to reach new highs.
2. Highly rated debt
There have been many debt downgrades in the past months that have affected many countries. Investors and portfolio managers who are in search of highly rated and investment grade debt have been pushed to Australia which has its credit rating unaffected.
3. A Safe Haven:
While the Australian dollar may not be on the same level as currencies such as the CHF, USD and JPY as far as safe havens are concerned; it still remains a good alternative for investors seeking a safe haven. It gets better when we put just Asia into perspective, as many believe that investing in Australia is by far safer than investing in the majority of Asian nations. With a good business environment, enhanced by supportive legal institutions, the AUD becomes a key way for many investors to preserve their capital.
To conclude though this rally of the AUD is shocking, it is justified. Expect this rally to continue if the euro zone remains risky and Australia remains a good investment alternative and safe haven.
Article provided TraderVox.com
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