MonitorMore bad news for expats: the Aussie dollar will stay strong
A favoured play on the growth of the Chinese economy and the commodity boom, there is little chance of the currency hitting fair value
"What's going on with the Australian dollar? Why is it so strong?" asks a colleague who wants to transfer money down under. "Surely it should be much weaker than this?"
She has a point. For most of the last 10 years the aussie has been a favourite play on both the growth of the Chinese economy and the commodity boom.
As a result, between 2001 and 2011, the aussie more than doubled in value against the US dollar, hitting a 30-year high of US$1.10 last month.
Since then, however, Chinese growth has slowed, and China's demand for Australian minerals has softened.
In the last few weeks the price Chinese importers are prepared to pay for iron ore has slumped to a three-year low, while Anglo-Australian mining giant BHP Billiton has suspended investment projects worth tens of billions of US dollars on worries about further declines in the prices of industrial metals.
Yet despite the bad news, the Australian dollar has remained stubbornly strong. As the first chart shows, while the non-ferrous metals index compiled by the London Metal Exchange has fallen by 18 per cent over the last 12 months, the aussie has slipped just 2 per cent.