It feels like the Australian dollar is being continuously punished in recent weeks. Coming up towards the last days of August, the AUD is trading lower and lower. The US dollar has been doing excellently by comparison leading to gains in the treasury, while worries about China still continue. The AUD to USD conversion rate has therefore been dropping. 1 AUD to USD currently stands at a rate of 0.64.
The main issue is worldwide global trade problems. Indicators on trade between markets show uncertain moves. Traders and investors have likely been clambering for safer trade opportunities, and therefore a safe haven. They thus abandoned an increasingly complex situation.
So why, then, is the US dollar doing so well considering the international situation?
Analysing the problems the AUD rate is facing in global markets may give us some answers. There is the issue of China. This has a large effect on international trade. It has been facing huge issues in its economy despite lifting its lockdowns. Many companies in the real estate market have also started defaulting. This is a huge problem for a country whose domestic market is so reliant on housing.
There are some options for the Chinese. They could adopt a looser monetary policy. This could help in growing the domestic economy, but it would shoot down the Yuan. To combat this, they could give away treasury bonds to ensure the Yuan remains stable for now.
This has already been happening, showing that China has been selling these throughout 2023, according to holdings in the US Treasury. This could be due to the indecision the Chinese government has shown regarding large economic problems, like the housing market, as we mentioned.
The problems will not resolve by themselves soon, it seems. China will have to act more decisively to save its economic situation. This could then have a significant impact on the AUD to USD conversion rate in the future.
