GBP/AUD Rises to 2.08
The Australian dollar has continued to fall against most of its major counterparts as the economic situation in China appears to be deteriorating. The Chinese had to suspend trading on their stock market on Thursday for the second time in one week as stocks and shares plummeted by a further 7%. As a result, the commodities based currencies have taken a hit, with the Aussie dollar losing another 1.5% against the pound and even more against the US dollar. The graph below shows GBP/AUD movement over the last 7 days.
GBP/AUD exchange rate graph
The People’s Bank of China on Thursday were forced to devalue the currency further, the biggest devaluation of the Yuan since last August. The Chinese currency has historically been loosely pegged with the US dollar, something the Chinese are trying gradually to move away from, aligning the yuan with currencies more closely linked geographically and through trade. The strengthening of the US dollar over the last year would have had a similar effect on the strength of the yuan, effectively making Chinese exports more expensive to foreign consumers. With the Chinese economically struggling, the PBOC are keen to make Chinese goods and services as attractive to foreign purchasers as possible, weakening the yuan and effectively lowering the price of those goods and services.
Regular readers of this blog will know the link between China and Australia, particularly between the strength of the Chinese economy and the price of the Australian dollar. Australia’s main export is iron ore, most of which is exported to China to fuel the vast Chinese manufacturing and construction industries. As Chinese growth slows, demand for Australian iron ore weakens and so does the Australian currency. Events over the last few days have been the perfect case in point.
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