“The liquidity of the Aussie is far lower than the U.S. dollar and the Euro , meaning that it will still only form a small but growing part of global forex reserves,” he added.
What Australia has going for it is its ability to draw strong capital inflows, both of portfolio and direct investment flows, to finance the current account, Kotecha said. The nation’s debt-to-gross-domestic-product ratio remains quite low while economic growth is relatively positive compared to other developed economies.
Australia is one of 14 countries that has an triple-A rating from Standard & Poor’s and although its central bank has cut official interest rates by 75 basis points since May to 3.5 percent and prices of commodities — the country’s largest exports — have been falling, the Aussie dollar has been resilient, trading close to parity with the U.S. dollar.
It was trading at $1.0027 against the greenback as of 3:30 p.m. in Sydney on Monday.
John Noonan, senior currency strategist with Thomson Reuters in Sydney, agrees that while the Aussie dollar has become a more attractive investment, its direction is tied to China’s economy and therein lies the big risk.Page 2 of 3 | Prev Page | Next Page