Commodity Linked Currencies Are Recovering With Global Economy

During the last few months, commodity linked currencies, have seen an unprecedented rise in their exchange rate against the dollar. For instance, the Australian Dollar and the Brazilian Real are among those currencies that gained the most. But can those currencies sustain its current levels?

Australian Dollar May be Boosted by Carry Trade

So far this year Australian dollar has appreciated 26% against the US dollar. Among many factors weighing on the recent strength of Aussie is a rise in commodity prices and a real improvement in terms of trade. Australia relies on row materials for about 60% of its exports and the price of coal, iron ore and gold has risen substantially over the last few months. Moreover, the Australian economy weathered the global downturn pretty well and hasn’t recorded a year over year GDP decline like many countries. Indeed, a cautious monetary policy and a big fiscal stimulus helped offset the loss of exports and made Australia one of a few countries with prospect of sustainable recovery in the near term. Looking further, the recent increase in interest rate to 3.25% will attract carry trade investors and drive the currency even higher.

Brazilian Economy is Recovering so is the Real

The Brazilian Real reached a 13-month high against US dollar, rising 32 percent since the beginning of the year. And although a remarkable increase in commodity prices contributed to its rally, a rebound in global risk appetite has been leading factor in the appreciation. In fact, in the beginning of global recession, the withdrawal of foreign capital and lost of income from exports weighted on the county economy and the Real. But with several government measures, including tax and interest rate cuts aiming at boosting credit supply and domestic demand, the Brazilian economy has been recovering bringing back the foreign investors interest and much needed capital.

Anna Fedec,
10/8/2009 12:14:14 PM