While the world recovers from the global recession, Australia is taking it pretty easy.
Job losses were below anticipated figures, GDP growth rates exceeded expectations, and interest rates didn’t reach the “free money” levels of some other economies.
As a result of this, and some economic resilience by China, the Australian dollar is holding at above US 90 cents, and I tend to believe that this will continue to rise and hit US $1.10 by Christmas.
Many would consider this prediction impossible, given that since the dollar was floated in 1983 we are yet to hit parity with the US, but there’s a few more ‘ducks in a row’ this time around.
For one, and possibly the biggest factor, was the comment made by RBA Governor Glenn Stevens late last year that the RBA would not be interfering with the currency’s value during this ascent.
Normally, the RBA will trade in foreign exchange reserves to dampen the dollar’s value. This keeps our export prices from becoming too expensive for the rest of the world.
The downside to this is that the practice of dampening the currency causes inflation, which in turn puts upward pressure on interest rates, which is probably one of the reasons why the RBA has chosen not to interfere this time. That, and the fact that we now have significant Government debt, adds further weight to the argument for a higher Aussie dollar.
So whilst the higher dollar puts exporters under pressure, it does open the door for local retailers of imported goods to make their mark. Australian sellers of foreign-produced goods are facing potentially one of the most lucrative periods of the last 20 years.
This makes 2010 a great year to be an importer.