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John from Moneycorp

Australian dollar update 02/11/2011

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The Australian dollar was in the top currency division for the week, strengthening by more than 1% against the pound. That was twice as much as the euro achieved, even with the benefit of the latest agreement to resolve the southern Euroland debt crisis.

 

The AUD is sensitive to economic activity on China because exports of coking coal and iron ore to that country (among others) are a significant part of Australia's economy. Were Europe to falter and slow it would dampen global demand for China's exports, so reducing China's demand for the materials that go into their production. Because Europe has apparently taken a major step towards getting its act together, the risk of a return to recession is lower – and the Aussie is higher.

 

On Monday of this week, problems in Europe resurfaced along with an interest rate cut (first cut since 2009). In addition, new home sales fell 3.5% in September from August their lowest level since December 2000 – a combination of these factors led to a weaker dollar.

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The Australian dollar has weakened slightly following no firm conclusion to the G20 Summit over the weekend.

From the Aussie dollar perspective, there is a massive focus over what happens next in Europe.

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