Market Overview

Australian Dollar Falls as Service Sector Contracts

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The Australian dollar fell on Friday, as the Australian Service sector contracted in May. According to Australian Industry Group, the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index fell to 49.9 in May from 51.5 in April. The values below 50 indicates contraction.

The news comes few days after the manufacturing sector reported contraction for the third consecutive month, after the Australian Industry Group/PriceWaterhouseCoopers Australian Performance of Manufacturing Index fell to 47.7 in May from 48.4 in April.

The Australian dollar has been a big winner in recent times and is trading near record heights against the U.S. dollar. The strength of the Australian currency is starting to take its toll on the economy, it seems, as strong currency makes the Australian producers less competitive on the international markets.

The Australian exporters will be given some relief after the Australian dollar lost some ground against the U.S. dollar. At the moment, the Australian dollar is trading around $1.0668, or 0.028% below yesterday's close.

Traders who believe the Australian currency has surged too high, hurting the performance of the Australian economy, will probably expect the currency to start falling against other major currencies. These traders will be interested in the ETFS Short Australian Dollar Long US Dollar ETC ETF (SAD).

Other traders might believe these is still enough power in the Australian economy to push the value of the Australian currency a bit higher. The Australian economy contracted in Q1 this year as a result of devastating floods in Queensland. Some traders might believe the economy should rebound strongly as the government reconstruction program kicks in, causing the Australian dollar to rise once more. These traders will be more interested in the CurrencyShares Australian Dollar Trust ETF (NYSE: FXA).

Posted-In: News Forex Economics Markets ETFs

 

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