Risk aversion has driven the AUD lower
In Efic’s latest economic update – the AUD and potential impact on exporter outlook.
The Australian dollar has fallen 5% against the USD in 2018 on the back of higher US interest rates, growing investor risk aversion (which sees investors
favour safe haven assets like the USD), and the dip in prices for Australia’s key commodity exports. But untangling which of these forces is primarily
responsible is difficult given that they are interrelated. US interest rates and investor risk aversion also influence commodity prices and Australia’s
interest rate differential with the US.
One way to assess the importance of these changes is by looking at counterfactual scenarios.
- What if the US Federal Reserve had kept rates unchanged in 2018 and investor risk aversion (proxied by capital outflows from emerging markets) had
- What if investor risk aversion remained low despite higher US interest rates?
Other stories in the latest edition of World Risk Developments:
- China—Trade war complicates economic rebalancing
- India—Strong headline growth masks economic vulnerabilities
- South Africa—Recession and populism renew downgrade fears
- Argentina—Austere budget should bring forward IMF support
- Pork exports—Swine flu could lift Australian pork exports