South Coast Register

Can the Australian dollar grow stronger in 2024?

Photo by Shutterstock.
Photo by Shutterstock.

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Australia's reliance on the Chinese economy has recently affected its currency performance.

The Australian dollar (AUD) tends to perform better when the Chinese economy is doing well, mainly because one-third of the country's exports go to China.

However, with China's recent economic challenges, we see the AUD hovering between 0.64 and 0.66 US cents this year - a significant decline from its 0.68 cents rally in December 2023.

Let's look at the factors behind this dip and how the currency's performance might play out for the rest of 2024.

Why is the Australian dollar getting weaker?

A country's currency performance directly reflects the economic situation, and the narrative is exactly the same for the Australian dollar.

The Australian dollar's performance over the last few years can be traced back to two major economic factors: commodities and interest rates.

While many countries, including the United States, have moved to increase interest rates over the last few years to combat rising inflation, Australia had one of the lowest increases in rates.

The United States set its rate between 5.2%-5.5%, a 22-year high change. However, Australia increased their rate to 4.35%, a 15-year high when you look at the statistics.

While a lower interest rate is good for a country's economy, the major challenge came from this decision's negative effect on the USD/AUD exchange rates.

The lower rates in Australia had the currency trading much lower than the US dollar, driving investors who use a trading platform in Australia to move to the USD and trade against the Australian dollar for higher yields.

In the context of commodities, trades have also directly impacted the Australian dollar's performance. One major mover in this category is China.

Over the past decades, exports to China have increased, accounting for 30% of all Australian exports. So, it's not unusual to see the Australian dollar drop in performance as a response to the lower export rate from the Chinese market.

These two factors are the primary reasons for the declines market participants have seen with the Australian dollar in the past months.

Photo by Shutterstock.
Photo by Shutterstock.

Can the AUD show more strength in 2024?

One of Australia's first indicators of better performance this year is China's attempt at a better economy.

There is optimism about China leaving behind some COVID-induced economic challenges in 2024, and a feat like this could contribute to the Australia dollar's performance.

The International Monetary Fund (IMF) recently adjusted China's growth forecast. In this report, they stated that Beijing's economy is set to increase by about 5.4% in 2024, following a strong post-pandemic economic recovery.

These predictions are a result of active moves being taken by the government to support the economy.

In addition, there will likely be rate cuts in interest rates coming from the Federal Reserve this year.

Considering the fact that the significant differences in rates between Australia and the US is one of the factors abetting its currency decline, a rate cut could mean good for the country's economy as well as the AUD's price position.

Although this isn't confirmed news, Federal Reserve officials have indicated that there is a high chance we will see some rate cuts in 2024.

Better economic growth in China and possible interest rate reductions would likely increase market optimism for the AUD and strengthen it against other currency pairs.

AUD price forecasts for 2024

Short-term prediction on Coincodex reveals a 1-month prediction of $0.684970 against the US a month from now.

Further predictions from analysts on the platform show a potential high of $0.748418 by the end of 2024 and a potential low of $0.662711. Performance forecasts from Forbes advisors show that the currency will be worth $0.70 by the end of 2024.

Westpac shows similar predictions and NAB is looking at a potential pump of $0.73.

Looking at these forecasts, the pattern from expert analysts points more towards the possibility of the AUD rising significantly by the end of the year.

However, it is important to note that these are predictions and all probable scenarios, depending on the country's economic performance in 2024.

Closing in on the potential performances of the AUD in 2024

Looking back, there are several traces of the dwindling performance of the Australian dollar this year.

The decline didn't start this year; it was a growing trend following economic declines, inflation, changes in interest rates, and other related causes.

However, looking forward, we can see some potential for better economic recovery.

The global inflation rate has been slowing down, and there are rising hopes for a softer landing in 2024.

A lot of countries are likely to benefit from this, including Australia.

Following other upcoming changes discussed in this article, traders and investors can be better assured that a greener pasture is coming for the Australian dollar in the currency markets.

This information is of a general nature only and should not be regarded as specific to any particular situation. This is not intended for use as investment, financial or legal advice as each individual's need will vary.