Monday, December 03, 2007

Pullback in Commodity Prices Hurts Aussie $

From Today's Daily Pfennig:

The Australian dollar fell over the weekend as a combination of the unwinding of the carry trade and reports of a widening trade deficit combined to work against the AUD$. The currency also weakened as the price of commodities that Australia exports stayed near the lowest in two months. The trade deficit expanded to just under A$ 3 million in October from a revised A$ 1.92 million a month earlier. Falling prices of commodities, which contribute about 17 percent to Australia's economy was the main reason for the rising deficit. We probably haven't seen the end of the volatility in the Australian dollar, but remain confident that the A$ will hold its value in the log run. Both China and India will continue to grow, and their demand for commodities will expand with the growth of their economies. This growing demand will keep a floor under the Aussie dollar.

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