1 aud 0 9981 sgd commodity woes push the aussie below par 912422015

The Singapore dollar cruises past its Australian counterpart

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By :  ,  Financial Analyst

The end of the commodities boom, slowing Chinese growth, and a painful transition out of a mining-oriented investment culture has weakened the Australian dollar. The once-powerful currency, which rode high on the back of an unprecedented commodities cycle, is now trading below parity with the Singapore Dollar.

For the first time since the global financial crisis in March 2009, the Aussie has slumped below $1 opposite the Singapore dollar. According to The Star, as at 11:20 am yesterday, 1 AUD = 0.9981 SGD.

As this is being written, the rate is down to SG$0.9959.

This is good news for Singaporeans who import from Australia, because they have to pay less of the local currency for their imports. Australian exporters also earn more of their local currency when their currency weakens.

For Asian parents seeking to educate their children abroad, Australia, previously very expensive, may now be a viable option. This may work against Singapore, which also welcomes overseas students.

The weaker Aussie may also boost demand for tourism and other such services from Australia.

With the commodities slump showing no signs of abating, the outlook for the Aussie continues to be dim. On Friday it slumped to a six-year low against the US dollar on the back of disappointing manufacturing data out of China. The fate of the Australian dollar is closely linked to the economic fortunes of China, because that country is Australia’s largest trading partner.

However, the commodities downturn has also taken a toll on Australia’s federal budget. This may lead to the country losing its AAA credit rating, according to ratings agency Standard and Poor’s, who raised a warning flag on its budgetary performance and the twin external shocks from a Chinese slowdown as well as a further fall in commodities.

According to some analysts, the Aussie could still suffer a downside of 5 – 6 per cent in coming months, says Channel News Asia.

Of additional concern is the rate decision tomorrow (July 29) by the US Fed, and the likely accompanying rhetoric from Fed Chair Janet Yellen warning of interest rate “lift off.” This could weaken the AUD further.

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