The Australian dollar's strength may yet be its undoing.
Australia may well be a victim of it’s own success as the dollar goes from strength to strength.
The Australian dollar rose again this month by 10% and is now at a 25 year high against the British pound. One of the reasons for its rise is the attractiveness of investing in Australia, which is offering much higher interest rates than the US or Britain for example. Also the high interest rates make for an attractive currency, especially against the British pound and American dollar, which are both at near zero.
Those who benefit from the soaring Aussie dollar will be Australian holidaymakers, especially those heading out to Britain or America, as they are likely to get a very good deal for their Aussie dollar.
It’s also good for imports such as cars, as the import market is now much cheaper and Australia benefits from the pain of other countries. Buying overseas goods in Australia is surely an investment in itself right now.
So why the gloomy headline, you may ask? Surely a strong Australian dollar is a source of national pride? Well yes, which is why many economists are urging people to look at the bigger picture.
If the Australian dollar is so high, this is bound to affect tourism, as holidaymakers will be getting a very bad return on their own currency. Statistics show a drop in the number of people entering Australia this year.
Also people thinking of emigrating to Australia will be put off by the high dollar and look elsewhere for their new lives overseas, as jobs become harder to find and houses too expensive to buy.
Also Australia is a country that relies heavily on exports. Many key exports are now just too expensive for cash-strapped countries to buy. This will reflect hard on the gold, coal, iron and other mining and manufacturing industries.
Australia has avoided the recession so far, but it needs to be careful that the strong dollar doesn’t burn itself out and Australia starts to feel the pain of its own national pride.
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