Winners If The Australian Dollar Falls

Currency and interest rates are currently playing a large role in the world economy, which should be no surprise because we are covering new ground in terms of record low rates and subsequent currency fluctuations. At present, 40 per cent of the developed world’s interest rates are negative. By contrast, Australia has one of the highest official cash rates. The consequence of this is the risk that the Australian dollar remains disproportionately strong compared to other developed countries’ currencies and damages our competitiveness. A fall in interest rates would put downward pressure on the Australian dollar, which in turn would improve export competitiveness, curb imports and ultimately balance Australia’s budgets again. The Australian dollar has already fallen from around US$1.10 to US$0.75, a fall of around 32 per cent since the Australian dollar reached its most recent high. A further fall of around 32 per cent would take it to historical lows of US$0.50. We believe this would require interest rates falling significantly from the current 1.75 per cent, or the Australian current account deficit growing significantly.