Lower than expected building approval figures have dragged down the Australian dollar. The market reacted sharply to the news of a 5.6% slump in approvals for new home construction in April.  The figure was a full 3.5% more than economists had predicted. Overnight our currency dropped from 92.51 to 92.45 cents.

2014-budgetThe knock-on effect will be a lower than projected Australian Gross Domestic Product figure for the second quarter of 2014. This, in turn, could prompt a sell off of the Aussie dollar by the Reserve Bank.

Retail sales figures and the Reserve Bank’s decision on interest rates are to be released soon. The markets hadn’t anticipated any cuts to interest. But the unexpected weakness in the building sector has introduced an element of uncertainty.

What is important is that traders do not lose faith in Australia’s economic recovery. Should this happen their rush to abandon the Aussie dollar could bring about the very thing they wish to avoid.

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