Why the Australian dollar has held its value

Back in 2016, there were a number of experts who predicted that the Australian dollar would sharply loose value against the US dollar. This has simply not materialised despite increasing US interest rates and the fact that the RBA has largely held domestic interest rates steady. Moreover, the United States economy has been booming, with record levels of GDP growth, extremely low unemployment and a massive tax cut from President Trump. Despite all of this, the Australian dollar has not lost value. Why?

Firstly, interest rates in the United States are still lower than Australia. This is the most important reason behind the strength of the Australian dollar. As investors look to leave their money somewhere safe abroad, they are still earning a higher return in Australia than they would abroad.

Australia also presents a more stable political environment in the short-run and a significant number of investors are very fearful about Trump’s behaviour, which has been extremely unpredictable, to say the least. Trade wars, twitter outbreaks and nuclear confrontation with North Korea all serve as major risks in the immediate future. Australia does not face any of these challenges at the moment.

The Australian economy has also shown itself to be very resilient and economic growth has been stable. The level of confidence in the Australian economy means that investors feel comfortable placing their funds in the country over the long run and don’t fear a significant currency devaluation.

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