The Australian Dollar to Pound Sterling (AUD/GBP), Euro (AUD/EUR) and US Dollar (AUD/USD) exchange rates weakened on Monday as economic forecaster BIS Shrapnel said that it expects mining investment to fall by a record margin over the next four years.
Last week the Australian Dollar advanced broadly against most of its major peers after the Chinese Central Bank took the markets by surprise by cutting interest rates. The cut to rates was the first made by the People’s Bank of China in two years and the move was seen as a positive by most economists.
‘The rate cut took the market by surprise but it was received positively and commodity sensitive currencies like the Australian Dollar and the New Zealand Dollar got some boost from the cut,’ said OANDA Asia Pacific senior trader Stephen Innes.
Concerns have been growing over the growth prospects for the world’s second largest economy and Australia’s largest trading partner.
The ‘Aussie’ and other commodity based currencies advanced after the announcement on hopes that the move would stabilise commodity prices.
As Monday’s session got under way however, the Australian currency weakened against most of its major peers as iron ore prices continued to decline as supply continues to outstrip demand.
Adding to the ‘Aussie’s’ decline BIS Shrapnel released figures which showed that it expects a 40% collapse in mining investment over the next four years.
‘Already we’re seeing a substantial slump take place in iron ore and coal investment around the country but now with LNG investment boom about to end we’re about to see the biggest slump ever in mining investment. If anything we’ve seen investment continuing to fall right through to about 2017 before stabilising,’ said BIS spokesperson Adrian Hart.
The Pound made further gains against the ‘Aussie’ as it found support from speculation that the currency will find support from relatively higher interest rates despite the Bank of England suggesting that rates won’t rise until late next year.
The Euro advanced after data released by the IFO institute showed that business confidence in Germany increased unexpectedly for the first time in seven months as the nation narrowly avoided sliding into recession in the third quarter of the year.
The US Dollar meanwhile was supported by expectations that the US Federal Reserve will soon raise interest rates. Policy makers also said that they think the national economy is strong enough to withstand external threats.
Further gains were restrained however by the release of softer than forecast flash US Purchasing Manager Index (PMI) data.
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