The Australian dollar is fast becoming a safe haven currency owing to its impressive performance despite increasing volatility in international financial markets.
Traders have taken refuge in assets normally viewed as safe such as U.S. Treasuries and gold as anxiety grows over another Gulf war in Iraq. However, despite the turmoil, the Australian dollar has continued advancing, puzzling both currency strategists and economists alike.
”There’s certainly something going on,” Paul Bloxham, a chief economist with HSBC told Sydney Morning Herald. ”There’s a different kind of behaviour around the Aussie dollar than there has been in the past. It is being treated more like a safe haven asset.”
Bloxham pointed to the growing foreign investment in Australian government bonds or the Aussie; the January-March quarter was the third straight one that global funds bought Australian Commonwealth government bonds the most, with transactions totalling $13.3 billion, the strongest quarterly increase in two years.
Foreign investors, who own nearly 67 percent of the country’s bonds, are drawn to the fact that Australia is one of the only ten nations that have retained a credit rating of AAA by all the three major rating agencies.
”In a comparative sense we are doing very well,” Mr Bloxham said. ”We still have fairly low levels of government debt. Indeed, we have a government that is seeking to make sure that that’s maintained in the future as well. The Australian economy is growing strongly on the latest numbers. And we still have central banks across the world that are printing money.”
The Aussie got a boost from the European Central Bank’s unconventional easing measures, such as negative deposit rate and liquidity injection, which are aimed at boosting economic growth in the euro area. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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