Radio Australia Today Editorial

Dollar Does a Swan Dive. What? Me Worry?

27 October 2008

This morning we were talking to one of our finance correspondents who went through the latest market woes for us (nice segment that lately. Would you like an anti-depressant with your news sir?)

One thing that struck me was that she said that the Australian dollar has dropped hugely over the weekend, shaving about ten US cents off its value.

The thing that struck me was the fact that she added the word “unfortunately” to the end of her report.

I made me think. Why is the falling Australian dollar a bad thing? Certainly there are nationalistic reasons for us wanting to have a dollar that is every bit as strong as the US dollar. (Hey Ho. Our dollar is bigger than YOUR dollar). There are also greedy reasons for wanting our dollar to be high. LCDs, cars, mixmasters, fridges and french toiletsoap, in fact anything we import, is less expensive when the Australian dollar is high.

But when the Aussie dollar is comparatively weak, the reverse happens, and our exports become much cheaper. Also people coming to Australia (ie: tourists) find Australia a much cheaper place to come for their holidays.

In other words, a falling Australian buck has a lot going for it.

There’s another bonus: if imports become much more expensive, then it is an encouragement for Australians to spend in their own land, rather than to send money elsewhere. Keeping money here helps our pretty poor Current Account, which has been running in monthly deficits for more than a generation.

Meanwhile poor old japan is seeing its yen getting ridiculously strong. It’s strengthening becuase people are investing in the yen rather than in the wobbly japanese sharemarket. As the yen goes up in value, the cost of Japan cars goes up when they are exported. That, my friends, is the last thing that Toyota et al need right now. People are not buying cars because (1) loans are getting scarcer (2) petrol is volatile and (3) they’re scared about getting into new investments. Car makers are having a terrible time of it. A strong yen is not what they want right now.

In all, having a currency which is weaker is not not all bad, and can be pretty good actually, depending on if you’re a glass half empty kind of person.

– Phil