Weak Australian dollar

The Kiwi dollar is high against the Australian dollar. Yesterday it was at 99.78c but it fell back by a cent today as the Australian Reserve Bank decided to keep the Official Cash Rate at 2.25%. The Australian economy is in trouble as China is not buying Australia’s minerals – iron ore and coal. This could lead to more unemployment. Already many New Zealanders who moved to Western Australia to work in the mineral fields are returning home.

However, the housing market in Sydney is like the housing market in Auckland and Christchurch. In the last month, the prices of houses in Sydney rose by 3%. This is probably the reason that the Australian Reserve Bank did not lower the Official Cash Rate to 2% today although it’s possible that will happen soon.

While the Kiwi dollar is almost at parity with the Australian dollar, it is not strong against the US dollar. This shows that it is the weak Australian economy rather than a strong New Zealand economy which is affecting the exchange rate.

Listen to July 4th 2014 to find more about the Official Cash Rate.

Vocabulary

  • Official Cash Rate – the rate which banks pay to borrow from the Reserve Bank
  • parity – equal (used in finance), (compare: on a par with)
  • exchange rate – the rate for money changed between two countries





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