An Asian affair: Commodity currencies and China

The rise of the Australian and New Zealand Dollars from the depths of March to their current levels has been an Asian success story.

Chinese economic growth has cushioned the effects of the worldwide recession in New Zealand and Australia. Both countries export large amounts of raw materials to Asian manufacturing centers, China foremost. The yuan is fixed to the dollar (unofficially) the aussie and kiwi are not. The Australian economy has avoided recession; the New Zealand economy shrank just 1.0% for two successive quarters. As China returns to strong economic growth and the potential for internal unrest diminishes, the two Asian Dollars rise, and everyone in Asia benefits.

China has boosted her GDP growth from 6.1% in the first quarter of 2009 to 7.9% in the second. Beijing’s four trillion yuan ($587 billion) stimulus has produced tangible results. The Shanghai stock exchange is booming, bank loans and credit are flowing to business and consumers, property markets are hot again, and car sales have overtaken those of the United States. The Chinese government, spending money it actually has, is courted by Washington’s debtor politicians who proclaim their belief in a strong dollar and fiscal rectitude lest Chinese officials withdraw their support for US deficits. The strength of the Chinese economy is imparted to her trading partners and material suppliers Australia and New Zealand, and their currencies rise against the dollar and the moribund American economy.

The additional success of these two commodity currencies is owed largely to the dynamism of the Chinese economy. Without the demand from the mainland, the miners and ranchers of down under would have few places to sell their products. Though the fall in the Antipodean currencies last year had everything to do with the American dollar, the climb back has been, to a large degree, an Asian affair.

From last summer until this past March the Australian and New Zealand currencies had suffered the same precipitous decline against the dollar as did every major currency except the yen. Panic buying of American Dollar assets trumped every financial and economic consideration during the prolonged financial turmoil. For the six months following the collapse of Lehman in September neither the aussie nor the kiwi sustained any appreciable rally.

However, since the recovery in world financial markets that began in March these two currencies have gained more than twice as much against the dollar as the euro. From March 4th to June 3rd the euro improved 14.3% against the US Dollar. In that same period the Australian Dollar gained 31.4% and the New Zealand Dollar 34.1%.

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