DISQUS

scotty · 1 year ago

Well. Our economy is definitely not in a good shape although it's not as bad as what's been happening in US and in EU. I think one major reason for dropping AUD is that those who invested in AUD from overseas need their money back to ease the pressure there. If they need the money *right now*, they'll be less picky in how much they are selling AUD for. So lots of money flows back overseas to put off the fire. And AUD tanks...

Well. IANAE (I Am Not An Economist) so maybe someone who really qualify can explain it better.

SimonGoudie · 1 year ago

I was thinking the exact same thing today - I can't quite work it out either. Hope someone can shed some light on this....

skribe · 1 year ago

Our economy is a minnow amongst a sea of sharks. So we could have absolutely no exposure to the current crisis and still be hit for six. Why? Because our trading partners are being heavily hit we're suffering too. If your buyers have no money, because their lines of credit have dried up, who are you going to sell to? There's no conspiracy, it's just a fact that when there's blood in the water everyone looses a chunk of flesh or two.

gregorylent · 1 year ago

fear and volititly .. markets aren't rational

Charlie · 1 year ago

It is really weird that no one is talking about this. This exchange rate drop has really affected a lot of businesses. Australians looking to close deals in US dollars have basically seen the asking price jump by over 30%.

As well as the commodities issues I suspect that there are some real worries about the Australian housing market. This whole crisis began with inflated housing prices in the US. Property in Australia is very expensive. Very glad I don't have a mortgage right now.

Wilson · 1 year ago

One interesting thing to mention is that this is not only happening to the AUD; many other currencies lost value against the USD over the last two weeks. Even the Euro and the British pound are down by about 5% (which, admittedly, is much less than the AUD) and the NZD by about 10%, while the Japanese yen is up.

However, the Brazilian real has dropped by almost 30%, and that country is as dependent on commodities as Australia, if not more. There may be a grain of truth to this theory.

BB · 1 year ago

my investment banking postgrad friends tell me its directly related to decreasing commodity prices being received by bhp/china etc... i asked this exact question and was told "decreasing commodity prices"

Nishad Herath · 1 year ago

Have a look at the US Dollar Index (explained here: http://en.wikipedia.org/wiki/US_Dollar_Index).

http://stockcharts.com/charts/gallery.html?$usd

Clearly the US dollar has strengthened significantly since the recent bottom, in absolute terms (well as absolute as the US Dollar Index gets). Therefore, the decline of the AUD against the greenback needs to be looked at in context.

Having said that, my understanding is that commodity exports contribute significantly to the balance of trade in the Australian economy. With global commodity prices falling and increasing expectations of significant global growth slowdown, it is not surprising that the Australian dollar is depreciating like this.

Apparently, a large portion of Australian debt is considered high quality debt by many, based on the grounds that a good portion of Australian debt is held by high income households. However it is apparently also the case that as a nation, our household savings are not too fantastic. It will be interesting see what happens to this "high quality debt" if these high income households suddenly become low or no income households thanks to a surge in unemployment sparked by the commodity slowdown.

Perhaps this scenario is impossible, but then again, I'm not an economist.

In any case, maybe at least now, powers that be might recognize the need to diversify our economy using our mineral wealth. Sometimes it makes sense to close the barn doors even after the horse is long gone.