The impact of Greece on the AUD
The Impact of Greece on the AUD
The impact of Greece on the AUD
At the end of May the Australian dollar rose following developments in Greece – at the time the Wall Street Journal reported that, to facilitate a new package of aid loans for Greece, Germany was considering dropping its push for an early rescheduling of Greek bonds.
Following the news the forex market had valued the Australian dollar at USD1.0700, reaching a peak of USD 1.0756 in the session.
Fast forward two weeks and the dollar has dropped more than one US cent, trading at USD1.0578 at 7am AEST on June 16, down from the previous day’s USD1.0688. This is likely due to concerns about a Greek default following Greek Prime Minister George Papandreou’s offer to step down in a unity cabinet if the opposition agrees to a reform plan. However, the Greek opposition is refusing to back any reforms, and thousands have protested new austerity cuts.
Why does this have an impact on the AUD?
Forex prices are often affected by macroeconomic information, including interest rates, GDP growth, unemployment rates and inflation, and political and economic news can also cause intermittent spikes.
Although this hasn’t affected the Australian economy at the time of writing, excluding the foreign exchange rates, the fear is that Greece’s instability has the potential to spread to other economies. Already Greece is a part of the eurozone, and the euro has suffered its biggest C_BOWI_30one-day drop since early May.
Credit ratings agency Moody’s has said that it may downgrade the ratings of France’s three largest banks, BNP Paribas, Credit Agricole and Societe Generale, due to their exposure to Greece, so it is easy to see how this could spread throughout the European markets.
And, the further this spreads, the more likely it is to reach Australia, or the economies with which Australia does business.
Why is the USD on the rise?
Unlike the AUD, the USD is considered to be a ‘safe-haven’ currency. When the forex market is particularly volatile, investors buy what they consider to be a steadier currency, resulting in the widespread selling of other major currencies.
So not only is the AUD suffering due to perceived economic threats, but it is also suffering because investorsC_TFIN52_64 are choosing to invest in the USD instead of the AUD.
However, the AUD did have a high of USD1.0713 on June 15 before the drop, and tried to retest that on June 16, thus outperforming other currencies on a negative day. This suggests that the market still sees the Australian dollar as good value, and that it may recover with another strong rally.
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