This article first appeared in the Daily Examiner, Northern Star & Coffs Advocate on 2 July 2013.
Over recent weeks, the Australian dollar has fallen sharply against the US dollar and other major currencies. The most recent fall was triggered by the US Federal Reserve’s announcement that it might start removing some of its stimulus earlier than expected. In this case, stimulus refers to printing money. On top of the US Fed’s announcement, doubts remain over China’s continuing economic growth. Any slowdown in China would flow on to the Australian economy with lower demand for Australian resources. This in turn would result in lower demand for the Australian dollars needed to purchase those resources.
But, is a falling Australian dollar really such a bad thing? If you’re planning an overseas holiday or purchasing imported goods, you’ll get less bang for your buck. But for many local businesses, it can be good news.
A weaker Australian dollar is, on balance, a positive for the Australian economy. Our goods and services suddenly become cheaper for overseas buyers, leading to increased demand. And industries likely to benefit directly include education, agriculture, manufacturing and tourism – industries many of the businesses across our region are involved with in one way or another.
So, where to next for the Aussie dollar?
Forecasting the Australian dollar is tricky, especially over shorter periods. However, the currency has been overvalued for some time. Remember, it was only in June 2010 that our dollar was trading as low as 85 US cents.
Further weakening in China’s economic growth would be negative for Australia’s mining exports. Under that scenario, the Australian dollar would likely fall further, providing additional relief to many local businesses.