Why the dollar is defying commodities

How has the Australian dollar's strength defied falling commodity prices and declining terms of trade? The explanation, which has important rates implications, lies in changing funding of the current account deficit.


Iron ore and coal are widely recognised as Australia’s primary exports, and the surge in Chinese growth and infrastructure investment over the past decade has seen the demand and subsequent price of these commodities rise dramatically. This trend has pushed Australia’s terms of trade to record levels, and we have seen a commensurate rise in the value of the Australian dollar.


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