Australian Dollar Might Be the Biggest Victim of the Current Financial Crisis

10/17/2008 12:52 pm EST

Focus: FOREX

The biggest housing and credit bubble in history, which had its roots in the United States, is now threatening the entire global financial system. However, with the world economy slowing down, export dependent countries like Australia could face the biggest risk of falling into a much sharper recession.

Performance of 10 major currencies against the Australian dollar (one month period)


The Australian dollar has been the worst performer among the world's most heavily traded currencies. However, the key question for the currency trader is whether we will continue to see further losses in the aussie. In fact, a sharp increase in market volatility makes it very difficult to make any type of short-term predictions, but given the current market environment of uncertainty, and de-leveraging in the world's financial markets, high yielding currencies are likely to remain particularly vulnerable against lower yielding currencies.

Moreover, with the world economy slowing down, it is reasonable to think that the demand for commodities will also begin to dry up, and export dependent countries like Australia and Canada could face a significant risk of falling into a much sharper recession. I have been short AUD/JPY since last week, and I expect more Japanese strength going forward.

By Antonio Sousa, Chief Strategist, DailyFX

DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn forex trading with a free practice account and charts from FXCM.

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