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Current Position:Home » News » General News » Topic

China made Aussie dollar stronger

Zoom in font  Zoom out font Published: 2015-09-08  Views: 7
Core Tip: At around 70 US cents, the Australian dollar is 36 per below its $US1.10 peak in July 2011, and down almost 14 per cent since mid-May. It will go lower, but the forces that created the commodity price boom have changed this economy permanently.
At around 70 US cents, the Australian dollar is 36 per below its $US1.10 peak in July 2011, and down almost 14 per cent since mid-May. It will go lower, but the forces that created the commodity price boom have changed this economy permanently. The currency shouldn't reach the depths it plumbed before China awoke.

Against a basket of trade-weighted index of currencies, the $A has fallen by about 24 per cent since the middle of 2011. It's down more against the $US because the greenback has been rising against all currencies, a trend that may continue later this year when the US Federal initiates a rate rise programme for the first time in nearly a decade.

The decline against the trade-weighted basket shows, however, that the Australian dollar is adjusting to the end of a once-in-a-lifetime boom in commodity prices, and the hesitant journey the economy has been making towards more balanced growth.

A weaker $A helps, by making Australian companies more competitive, overseas and in competition with imports, and the Reserve Bank is less concerned than it was that the currency is not tracking commodity price declines closely enough.
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It has been holding its cash rate at 2 per cent since May, but as late as July 7 when the $A was 74.5 US cents was saying that further dollar depreciation was both "likely and necessary" given how far commodity prices had fallen. In statements since then including its statement on Tuesday after it again left rates on hold it has said only that the currency is adjusting to lower commodity prices.

If you are looking buy anything overseas or from overseas, be it shares, cars, heavy equipment, software, underpants or a holiday, you are probably less happy about the $A's dive.
 
 
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