Here's a question? Is Australia a developed nation? By all appearances it is, or at least it seemed that way until this past year.


By way of background, emerging markets had a great run after the developed countries resorted to monetary stimulus in response to the financial crisis. Money flowed anywhere that offered higher returns -- remember when it seemed like every country could borrow money for years at low interest rates? -- while economies such as Australia and Brazil flourished as China bought vast quantities of their raw materials.

Now the rich countries seem to be getting back on their feet. One consequence for poorer countries has been a reversal of capital flows. The easiest way to see this shift is in the declining value of their currencies:

JPMorgan Emerging Market Currency Index. Source: Bloomberg.
JPMorgan Emerging Market Currency Index. Source: Bloomberg.

Since Australia benefited so much from the demand for raw materials it may not come as shock that it finds itself in much the same position as Brazil and South Africa. Try distinguishing Australia's currency from the other two when all three are compared against the U.S. dollar:

Source: Bloomberg, author's calculations.
Source: Bloomberg, author's calculations.

These exchange rate moves all seem to be driven by changes in real U.S. interest rates. You can see this by adding the yield on 10-year Treasury inflation-protected securities to the chart above:

Source: Bloomberg, author's calculations.
Source: Bloomberg, author's calculations.

Australia's benchmark stock index has also done worse than stock markets in the U.S., Japan, France and Germany over the past 12 months. If other emerging markets are in trouble, then maybe Australia is too?

(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)

To contact the writer of this article: Matthew C. Klein at mklein62@bloomberg.net.

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net.