THE Australian dollar has trended downwards sharply this week, reaching a new six-month low in value against the Greenback this morning.
At this morning’s National Australia Bank-quoted figure of US90.85c, the currency has now declined about US2.6c since this time last week.
As can be seen in Beef Central’s ‘Industry dashboard’ graphs on the home page, the dollar has been trading in a fairly narrow band between US92c and US94c for much of the past five or six months.
NAB senior economist Spiros Papadopoulos told Beef Central it was only a week ago that the A$ seemed to be on a move upwards, touching US94c after the US non-farm payrolls release.
“But sentiment in the A$ has quickly turned, with the currency losing ground not only against the stronger US$, but against most other currencies as well,” he said.
There were a number of issues impacting on the level of the A$ at the moment, Mr Papadopoulos said.
“The key one is the rise in the US$, which has strengthened in the past week as markets reassess the timing of the first Fed rate rise next year,” he said.
“Added to that, Australia’s iron ore export price is at a five-year low, so our terms of trade continue to deteriorate.”
Volatility in the A$ /US$ had also picked up. That trend is evident in the chart published here, prepared by Bloomberg, which plots three-month implied volatility.
The A$ performance overnight was further impacted by another night of weak base metal prices, while the iron ore price is down again, -0.4pc to $81.90/t.
Indeed, not even the strongest monthly rise ever seen in Australian employment could save the A$ overnight.
“The market, like ourselves, didn’t seem to believe the employment figures presented by the ABS yesterday,” NAB said in a market commentary this morning.
ABS had employment rising a record 121,000 in August, with the unemployment rate falling to 6.1pc from 6.4pc. Despite the ABS’s denials, the various changes it made to the labour force survey methodology in July appeared to have clearly impacted on the employment figures in the past two months, NAB said.
“The leading indicators have been suggesting better labour demand, but employment growth should be averaging only around +15,000 per month. The likelihood is that much of the August gain will be reversed over the next few months, which would see the unemployment rate drift higher.”
The RBA has recently said that a consistent improvement in the unemployment rate would not happen until 2016, so they too are unlikely to give much weight to yesterday’s data.
Benefit to exports?
While on face value, the softer dollar is advantageous to Australian beef exporters in terms of competitiveness in the international marketplace, in reality export customers often seek to gain a share of the spoils from an easing export currency, in the form of lower offer pricing, in A$ terms, to reflect the currency benefit to Australian exporters.
It applies particularly when the demand and supply sides are in some balance, but perhaps less so during the current extreme high international beef demand period.
Does the reverse happen on a rising currency market? Not likely, traders say.