Forex watch
How low can the Australian Dollar go?
The Aussie dollar continues to slide on the back of the recent rate cut to 1.25% but with an expectation that it will continue to fall to 0.5%.
Why does a lower interest rate cause our currency to fall even though the miners have been roaring upwards?
Its because of the interest rate spreads between the Australian and US. The US rates is currently at 2.5% while the Australian rates are at 1.25%. Think about it, you can borrow money in Australia for a cost of 1.25% and put that money in the US for 2.5% causing investors to flee the Australian dollars and put it into the US Dollars. Less demand for Australian Dollars and more demand for US Dollars!
The question is how much lower can the currency go?
We see stiff support at 68 cents USD but if that is broken, we see it trading between 62 cents to 68 cents or around 65 cents (as shown above) but bear in mind Donald Trump wants the US Federal Reserve to cut interest rate which might happen sooner rather than later which should give the Aussie Dollar a boost. We see this boost hit the down trend at 70 cents before continuing the slide.