Australian Floods in Queensland set to keep the AUD low

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The devastating floods that have rampaged south east Queensland, including the CBD area of Brisbane, are set to keep the Australian dollar low vs. cross currencies for at least the next 6 months as Queensland recovers from the significant loss of business infrastructure.

The south east areas of Queensland are responsible for a significant proportion of Australia’s coal, wheat and sugar exports. A number of coal mines are on hold and crops have been wiped out as a result of the floods. The CBD of Brisbane, Australia’s 3rd largest city, has suffered extensive damage in areas and the damage toll will not be known until the floods reside.

Queensland Treasurer Andrew Fraser said he expects the flood damage bill to cost billions of dollars, while Reserve Bank board member Warwick McKibbin said a hit to the economy of 1 per cent is ‘‘not out of the question’’.

With the slump in the economy, as a result of the floods, The Reserve Bank of Australia is unlikely to raise interest rates in the foreseeable future. This is likely to keep the Aussie dollar low vice cross currencies. In fact, we have already seen the AUD dip vs a number of currencies as news of the floods circulated throughout financial markets.  Over the next two weeks, as we get a clearer picture of the damage, watch any exchange rates featuring the AUD for signs of weakness.

Published on 12th of April 2011
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