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AUD: Seeing the wood for the trees

Anyone keeping a close eye on the decline of the Australian dollar and the copious amounts of commentary accompanying the trend may be starting to feel as though they “can’t see the wood for the trees” on the issue. And they couldn’t be blamed. 

In August 2011 the Australian dollar peaked above 110 US cents, but while many Australians were relishing in cheap overseas travel and milking the internet for bargain commodities, economists were left wearing a cautious frown. It wasn’t good news for the economy. Australian industries such as education, manufacturing, tourism and non-mining exports were suffering. Australia was expensive for outsiders – Australia was unattractive – and there were hopes for a change in tide.

Four years later, the Australian dollar is hovering around 70 US cents but apparently, it’s still not good news. “Weak,” “struggling,” “woeful” are just some of the words used to describe the Australian dollar today.

So why is the Australian dollar falling? A booming Chinese economy, hungry for Australia’s iron ore and other commodities has since lost its appetite. Now, volatility in the Chinese sharemarket has raised red flags against the strength of China’s economy and its need for Australian resources. This, partnered with interest rate cuts and lethargic economic growth has bolstered the declining dollar but most importantly – with an air of unpredictability.

Six months ago, Reserve Bank assistant governor, Chris Kent, told ABC News that “our exchange still remains relatively high given the state of our overall economy.” Dr Kent was speaking of a dip below 76 US cents still needing to go further. But commenting recently, OzForex currency trader, Matt Richardson, told The Australian “it is becoming increasingly difficult to map a clear path of trajectory for the Australian dollar.”

It perhaps isn’t the current state of play that should be alarming us, but the volatility – the apparent lack of control and foresight over the Australian dollar’s fate that we should find unsettling.