A 10-year long decline in Australia's interest rates are putting in peril one of the global foreign exchange market's most sought-after wagers upside down.
The Australian currency crumbled to a multi-year low of 0.6585 before climbing back past 0.6600 to end the trading late Friday. The AUD has fallen almost 6.0 percent since the early weeks of January and registering new lows versus the US dollar.
The Australian dollar, viewed as a proxy for world growth risks because of the country's connections to China's economy, dropped as much as 0.6 percent to 65.90 US cents. It hit 65.85 US cents, its weakest since 2009. The Japanese yen rallied for a second consecutive session by 0.4 percent to 111.34.
Economists expect the Australian currency to slide even lower, especially if world markets took a long time to recuperate from their current slump. The AUD/USD forex tandem plunged sharply Friday after the Australian Commonwealth Bank Services PMI plummeted to 48.5 this month.
Capitalists with an interest for a little risk had a winner for years with a carry-trade that had them loan trillions of Japanese yen at almost zero rates and use the currency to buy Australian dollars. Clinging onto the AUD for a few weeks could earn them enough interest to initiate a trade-pay. Those with the courage to hold on to it for months or longer made big earnings.
The JPY may be revalidating itself as a go-to investment to usher in the week. The yen fell to a 10-month low against the USD weakness in the global financial market added to worries about Japan's economy, which in the second half of 2019 took a heavy blow since 2014.
Looking ahead, there are no scheduled releases in Australia though China will see the release of its Industrial Production and Retail Sales for January. If Chinese figures don't meet market estimates, the AUD/USD currency pair could succumb to new multi-year lows.
Foreign exchange investors are beginning to set their sights Down Under as a place to get cheap funds, not somewhere to capitalize on them. It is quite a snub for a wealthy country in its 29th year of economic rally, and comes as policymakers find it difficult to cushion the financial effect of drought and wildfires.
Global markets fell sharply as the US greenback strengthened and those caught on the wrong corner of the steep climb were side-swept from the market, stemming from the flow of currency purchasing.
