GBP/AUD Rises as Aussie Dollar Hits 6-Year Low

GBP/AUD Moving Towards 2.09

The Australian dollar has continued on its downward trajectory this week as concerns over the Chinese stockmarket and continued weakness in commodities prices has left the Aussie on the back foot, dropping to 6-year lows against the US dollar and the pound. The graph below shows GBP/AUD movement over the last 7 days.

GBP/AUD 7 Days

The Aussie dollar’s woes were compounded on Friday as the price of iron ore, Australia’s biggest export, dropped below $50 per tonne for the first time since April. The strength of the Aussie dollar will often fluctuate with the price of iron as the antipodean nation mines and exports vast amounts of iron to the Chinese, fuelling expansion in China’s huge manufacturing and industrial production sectors. With this in mind, the huge losses on the Chinese stock market have also weighed heavily on the Australian currency. With the Chinese stock market dropping 30% in the last few weeks, coupled with a 16% fall in the price of iron ore over the last week, the Aussie dollar is now trading firmly above $2 to the pound, and looks set to stay there. Against the US dollar, the Australian currency has also hit fresh, 6 year lows.

Many fear that the trouble in the Chinese stock market is the start of a collapse in the Chinese economy, which would have disastrous consequences for the Australian economy considering the importance of the trading relationship between China and Australia.

“Investors fear that the Greek crisis, sell-off of Chinese equities and decline in commodity prices could lead to a more dramatic slowdown in Australia’s economy” said BK Asset Management Managing Director Kathy Lien.

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