Hi all,
I was wondering why our AUD has dropped so dramatically in the last half year or so.
Also, what does Australia need to do in order for the AUD to be strong as it once was (2011-mid 2013)?
Cheers.
[ELI5] Why is the Australian dollar so weak atm?
Kewok on 11/04/2015 - 08:37
Last edited 11/04/2015 - 08:38
Last edited 11/04/2015 - 08:38
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More fundamentally, interest rate parity has some effect on the exchange rate. Our lower interest rate means lower return on investments for savings, therefore there will be an outflow of investments to other countries that have a higher relative exchange rate. Forecasts of future rate drops will only encourage people to speculatively sell the AUD and buy another currency which has (or will have) higher interest rates.
The interesting story… is how the hell is NZD nearing parity every day?
There economy is doing better than oz. Unemployment is lower. But mainly their reserve bank is considering raising rates despite falling dairy prices. Also their budgets are delivering surpluses.
And All Blacks are still a champion side.
"And All Blacks are still a champion side"
Ahhhh… thats the one i forgot about. It explains everything!
But we won the cricket world cup. The world has moved on and few people care.
NZ is doing really well atmo, its quite amazing.
Reasons seems to be the reason. But unfortunately they are not. Currencies, commodities, stock index, etc, every trading instruments is keep going up and down every several years. That's the way someone get money. Theories such as supply and demand, RBA's interests rate change can never be the real reason of this. They only come when they are needed to come. The AUD will not stop sliding whatever we do and it will also goes up someday even though we do nothing.
WHY IS THE AUSTRALIAN DOLLAR SO WEAK –
The answer is simple its because our Government wants it that way.
Normally a nations currency value would be determined simply by other nations perception of our economy.- its strengths ,weaknesses and its Governments contribution to Wealth building and Stability.
We currently have a government intent on reducing our standard of living
The major contributor to the depreciation of our currency has been our own Government working in conjunction with the Reserve Bank and possibly ‘who knows who’ to ‘talk down ‘ our economic prospects coupled with efforts to create more unemployment rather than introduce measures to Create Employment.
The Government would have you believe that a lower AUD is desirable in order to stimulate exports of our Goods and Services
Exports can be stimulated more directly by Vendors simply reducing the Export Price on ‘difficult to sell items only’.
And the Reserve Bank would have you believe that Interest rates need be kept low to prevent inflation (principally due to the buoyant nature of Real Estate).
And the reason for such buoyancy in real Estate are the ‘bargain basement ‘ prices to overseas investors.due to our falling Dollar..
What no-one is saying is that having decreased the value of AUD ….all Assets, Cash, Savings, Homes, Superannuation, Businesses, and Wages/Salaries (paid or valued in Australian Dollars) have been devalued……..(only those wealthy enough to hold overseas investments and assets not directly tied to a particular currency can avoid being severely impacted by this).
All imported goods and services including petrol will increase (at a minimum proportionally) , and due to transportation costs even locally produced goods will become more expensive.
It appears to me, that far from protecting our interests as is its charter, our Government has done quite the opposite and ‘Sold Us Out’.
Unable to convince the Public of the need for ‘Austerity measures that take from the Poor to give to the Rich they are reducing Australian Labour Costs in the most insidious way to make not only our Labours Present and Future cheap to acquire, but also our Past Labours (in the form of our assets).
The Government (including its ‘Rhodes Scholar’ may have been well intentioned’ )but its actions and the consequences thereof have been seriously detrimental.I hate this government as much as anyone, but thats a load of nonsense.
I think his analysis makes a lot of sense. Care to provide a rebuttal?
Simply due to the fact that this return to more normal USD-AUD exchange was always going to happen. Nothing that the LNP could do could possibly stop the change in macro-economic and resource price changes that is driving this drop in the AUD dollar. I always laugh when people think that governments really have any real control over currency rates (baring China, but thats a totally different case_)
Lets go through a few points your argument:-
"The government wants it that way". - Not sure where you got your information but I don't think Abbott/Hockey have been quoted wanting to influence the AUD in any way. The Reserve Bank, on the other hand have been on a mission to push down the AUD via rate cuts. It makes these rate cut decisions independently of the political process.
"The Government would have you believe that a lower AUD is desirable in order to stimulate exports of our Goods and Services" - This is fact. Economics 101. A lower AUD does stimulate exports, you only had to look at the past few years to see the costs of a high AUD, making producers uncompetitive and forcing jobs overseas.
"Exports can be stimulated more directly by Vendors simply reducing the Export Price on ‘difficult to sell items only’. - This bandaid solution is not a viable for many of our business sectors. Eg Many smaller Agricultural producers were able to make a profit in 2014 due to the AUD remaining below parity to its US counterpart. These same producers were incurring losses in prior years due to a stronger AUD. Simply put, exchange rate fluctuations does affect their bottom line profit.
"And the reason for such buoyancy in real Estate are the ‘bargain basement ‘ prices to overseas investors.due to our falling Dollar.." - Lets be more specific. Currently it is really only Sydney and Melbourne that has a really hot property market. (which are the only two cities which rose 5%+ on average this past year). A large portion of these sales in the cities are going to middle/senior aged Aus residents whom are seeking to diversify their super fund into Aus property. And everyone should know the recent demand is due to cheap credit, not falling dollar. Yes there are overseas investors (which I think accounted for 12%) but they shouldn't be put forward as the key reason for strength in the real estate market. Also on a humourous note doesn't your argument also then imply more overseas investors in aus = more demand of aud = stronger aud :S. Slight contradiction!
Look the value of the AUD is for the most part influenced by key commodity prices. You can continue to blame the government or you can try delve deeper and come to the conclusion, like me that the government has little control in this matter.
There's a lot of reasons as others have said. Weakened economy, layoffs, weakened mining sector, negative approval rate for the PM (all time low it appears) recession, along with other more complicated reasons like interest rates and things I don't fully understand. I will say that a national loss of confidence in the future (i.e. less job security) means people buy less stuff and are more cautious, try and save more money which is good, but not great for the economy. This contributes to a weakened dollar.
Moreover, I'm not sure how much it factors, but the search for MH370 off the coast of Perth— It's the most expensive search of all time and we're footing a lot of that bill. I'm not sure how much a cost like that hits our economy, but if we're even giving up half of 70million, that means we have less money on a lot of other things, like government workers and stuff. I wouldn't be surprised if part of the government budget cuts are partly because of MH370, but I'm no economist and I don't want to presume. I just figure that although people have forgotten about the crash by now, that money is still being paid, and with a cost that big, it probably factors in some way.
C'mon you can do a back of envelope calculation for this. Say the working population in 10 million. That means each worker paid $7 for the search. How much did you earn today even at the minimum wage? It's easy to lose sight of how much money is flowing through the economy every second.
Australian search efforts use defence assets. These assets would be deployed elsewhere at a similar cost. Our government decided using them for a search was better diplomatically for our country that other deployment options.
Yep, and to put it in perspective. The tax payers of this nation have been fleeced over 10 billion over the last decade in Iraq and Afghanistan, enough to fund tertiery education for every student in the nation.
Unfortunately that is the cost to stay on our allies good side.
" like government workers ". You serious? Overpaid, overweight and terrible slow service!
You're the camel!
Ahh the Australian dollar. "Shorting" it was one of my most profitable trade to date :-)
The chinese mainland rich ppls will buy up all of our property soon with the ongoing low interest rate.
Unless the government do something with the banks not lending money to them and discourage foreign investments. Unlikely will happen because they get stamp duties… At the the burden of locals home ownership.
So p***ed off!
Mining boom has finished it's now the property boom where construction companies and builders all buying up old houses then develop and sell to foreigners. I call it bullshit
Please check your sources before posting.
The available data, while incomplete, suggest that for much of the past decade or so approvals
granted for foreign investment in the residential sector have remained around 5–10 per cent of
the value of dwelling turnover in Australia, and perhaps half that share of the total number of
dwellings turned over. The actual level of foreign purchases of dwellings has been significantly
lower.SourceHousing prices in key urban cities such as Sydney and Melbourne have been driven up by factors such as population growth and investors (read: baby boomers) taking advantage of negative gearing. Foreign investors, eg 'Chinese mainland rich ppls' are only allowed to buy off-the-plan developments.
The chinese mainland rich ppls will buy up all of our property soon with the ongoing low interest rate.
Well, no. Foreign Chinese investors may have their own sources of funding when buying developments (or they just pay in cash)
Mining boom has finished it's now the property boom where construction companies and builders all buying up old houses then develop and sell to foreigners
I agree with this - has definitely been happening.
The point on 'Chinese mainland rich ppls' are only allowed to buy off-the-plan developments.
No this is not true, because they can easily get their relatives and friend to buy ON THEIR BEHALF
My point that foreign investors are not allowed to buy established dwellings still stands, and the fact that some foreign investors circumvent the rules by using their relatives to purchase property is also true. Although the incidence of those cases aren't reported, but one can imagine that it will not be too common - the relative has to hold all the equity in the property (i.e. they cannot hold the property on trust for the foreigner), and the foreigner cannot protect themselves by registering on title.
The local relative must also have a valid source of financing, so unless the foreign investors suddenly transfers a giant sum of cash to the relative (which is dodgy in its own right), banks wont lend them money for the mortgage if their incomes are not high enough (of if they have already taken out their own mortgage.
Paying in cash is not the smart way. With low interest rate, its cheaper to borrow in AUD than in China. Plus you keep your cashflow. Your facts/reports are non realistic, the truth is not told to the public, media wants you to believe its not the forgeiners but in fact much of it is.
Your facts/reports are non realistic, the truth is not told to the public, media wants you to believe its not the forgeiners but in fact much of it is.
How is an RBA publication not accurate?
Please present some evidence of your statement. On the contrary to what you have said, my impression of the media is that they want people to believe that the increase in property prices is caused by foreigners whereas in fact foreign investors only contribute to a very small proportion of real estate turnover.
Its called a secret. You will not find anything on the net or sources. You don't have to believe what I say. Only those in the market will know. Pointing at facts doesn't mean it's the truth when those facts are artificial.
You trust government and RBA, I think different
AUD isn't weak. It was abnormally high. If anything it is a bit high still. As much as it pains you to buy the latest iphone and xbox game at a slightly higher price, falling AUD is great for our exports a large part of which are farmers.
Anyways what people should be asking is "these falling interest rates are awesome, how can I take maximum advantage of this amazing opportunity before me"
& how exactly, as pensioners living on our hard earned, invested savings supposed to manage on an ever decreasing interest rate ?
Please do tell on how to " take maximum advantage of this amazing opportunity before me "
Personally, methinks you are talking out of your rear end - if you can, show otherwise, if you can't - then shut up.
as pensioners living on our hard earned, invested savings
Which one is it? Are you a pensioner (i.e. receiving a government benefit) or living off your savings (i.e. NOT receiving a government benefit)?
how exactly, as pensioners … supposed to manage on an ever decreasing interest rate ?
If you are worried about dropping interest rates affecting your lifestyle then you must be a millionaire. Even assuming you had no other assets then you can only have $775,500 in the bank before you don't qualify for the pension. A 0.25% interest rate drop on $775k is not even $2k per year before tax.
Living off our savings & no we do not have over $775,500 in the bank. Just hard working people all our lives who are now being subjected to cope with what we have been able to save as the government keeps raising the age to beable to access the pension we have paid towards. Dear PBG, it will come to you one day, your thoughts & comments to others should be with more thought & caring.
The time clock ticks continuously & you will realize sooner than you think that the years have passed by with many " ifs, buts, & maybes on what you could have achieved in your life.
You are not here for a dress rehearsal - you're here for the main event.
My comment was not aimed at you but the people in the current workforce, this is our opportunity to get ahead.
Your generation had an even bigger opportunity in the property booms post 80's recession, people immigrated here knowing no English, owning 1 suitcase and many completely unskilled and today they are retiring millionaires due to those property booms (and bloody hard work). Crazy times, good on them!!!!!
Thank you. We emigrated to Aus. from England 27yrs. ago - bringing our household contents, husbands tools of trade, our car & the dog -the dog cost more to bring than everything else put together ! )
Yes we were then able to purchase a home outright without a mortgage. However 1 day after arriving my husband started working with his business partner in a building company they set up together before emigrating - 27 years later & they're still going strong. Both are now over retirement age but continue " hands on" work as their reputation brings in so much work from clients that they cannot give up.
Our home we have lived in for over 24 years ( since selling the first one ) has been renovated, extended upwards, outwards,backwards but still not finished . HARD WORK has achieved everything we have - not opportunity or luck.
Nothing will be handed to you on a silver platter ( unless you happen to be part of the royal family )
Regarding pensioners thinking they are now getting paid out from past paid taxes, nothing could be further from the truth.
Often when the topic of pensions appears on talk back radio or internet forums, someone comments that they worked hard and paid taxes all their life, so now they're getting some of the money back that they paid into the system. It's simply not true. Any taxes collected years ago were spent immediately. Nothing was saved by any government.
What's happening now is our population is aging, and in a few decades time we will have so few working age Australians that the current pension system simply cannot exist. There won't be enough working age people to tax to pay the pensioners. The solution is to increase immigration (thus delaying the problem), vastly increase taxes (which will cause working age people to flee the country), greatly decrease the pension pay out, or force people to use their own savings instead of relying on a dwindling pool of taxpayers to fund their lifestyle. Our superannuation system partly addresses the last point, but we still don't save anywhere near enough.
When I reach 65 years of ago I expect two things to happen: retirement age will be pushed out to 75 or beyond and/or the pension will be so small that it's not possible to survive on.
As for the current problem of ever dwindling interest rate returns on savings accounts (about 3.85% is about as good as I've seen for instant access cash), you can thank your property owning baby boomer friends for pushing up the price of housing so far that people need to borrow 6 to 9 times their earnings to buy a place to live. Back in the good old days the ratio was just 3, and even with higher interest rates the real affordability of property was much better.
Low interest rates are here for good. Better get used to it. If interest rates went up to the good old days of 10% we would see hundreds of thousands of property defaults and a depression across Australia. That may make some baby boomers quite happy however, as it would mean lots of cheap property about.
Oh Cluster - what a load of dribble. Are you trying to say that the current population is not growing from our own fellow Australians- do we not populate & grow in this wonderful country of ours ? & therefore need to import?
Do you want your pension taken away from you to assist the next generation, leaving you with zilch as according to you, payments can't be paid out to the older generation even though it has been paid for.
It's your life to make with what you will. All opportunities are there - take them & move on to better things in life or complain continuously on what a bad deal life has given you & stagnate in a never ending " WOO IS LIFE " mentality.
If you truly believe that you will have to exist upon your own resources once you reach retirement age then the answer is clear - start planning now !!
Eh, chances are if you have enough money to actually not use the pension, then you probably arn't relying on simple interest rates for your income source, you more likely to own investment property, shares and perhaps long term bonds. Short term interest rates wouldn't directly impact most self funded retirees.
When China farts AU$ goes high and when she sneeze AU$ goes down, we try to jawbone and trying to contain at 0.75 and today 0.73, whatever the way it swings I am screwed and have to look for a bargain like free ice-cream or buy one get one free glow in the dark condom in this fine forum.
Everyone is talking about the mining boom being over and oil going down but no one has mentioned the end of quantitative easing by the US. This is probably one of the main factors in the decline of all kinds of speculation in resources and the collapse in currencies associated with the nations that produce them at the moment.
OP, the reason is quite simple. Treason!!!
Because it didn't go to the gym…
I'm a currency trader and to put it in the most simple way, its due to the USD appreciating as the world is anticipating an interest rate rise.. The USD is on a tear
So could the argument be made that in order to get the AUD back to or close to parity with the USD, we'd need to find another natural resources stronghold?
ie uranium (I think SA has the largest uranium and shale oil deposits in the world or one of the largest amounts).
Obviously environmental side effects but leaving those out, would something like tapping into that be the next step?
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We arn't even close to a recession, not sure what you are on about.
I think more relevant is the fact we didn't make any use of our resources at all. All we got from this mining boom was short term economic prosperity, combined with massive growth in house prices. We did not create a future fund from the huge possible revenue we could have had, had we not simply given all our leases to foreign owned companies, combined with a levy that was based only on raw profit numbers, rather then per ton of ore taken out of the ground.