There's good reason to celebrate the fall in our currency
OUR commodity-focused currency became the latest punching bag for currency markets yesterday, dropping almost three cents in half an hour as overseas investors baled and the short sellers piled in. Those who take the superficial view that exchange rates are the financial equivalent of the Olympic medal table will be mortified at our dollar's decline against the greenback. They will recall the horror of the 2006 Ashes cricket series when the Barmy Army taunted Australian fans with the chorus "Three dollars to the pound, dooh-dah, dooh-dah day".
Let's just take a deep breath for a minute. First, our dollar has arguably been oversold. It is now back where it was in late 2003, before the resource boom even started, even though our fundamentals are much stronger than they were because of all the investment, particularly in new mines, that has been made in between times.
Second, it's a fantastic windfall for exporters. As world markets panic, the dollar's a very useful buffer against economic storms. It is to our exporters what interest rates are to home buyers: lower is better. The dollar drop has more than cancelled out the recent drop in international wheat prices, for instance, which will help the grain growers who hope to harvest 20million tonnes of wheat this year compared with 13 million tonnes last year. More tonnes going out at about $300 a tonne is good news.
For miners feeling the effects of falling prices, the fall of the dollar means a rise in fortunes. Contracts set in US dollars will translate into bigger Australian-dollar profits. There is good news, too, for universities and TAFEs which will now be more competitive in the overseas student market against US and European institutions.
The gold price, meanwhile, is above $1300 an ounce, an all-time high thanks to a global flight to bullion which took the price to $US902 an ounce yesterday.
It may not last, since markets are overreacting to everything at the moment, but it won't do any serious damage while it's at this level. It's also worth noting that Australia's overseas assets have been building up solidly in recent years. Australia now has about $374 billion in foreign assets in excess of our foreign-currency-denominated liabilities, although we're still running a net foreign liability to the tune of $692 billion or 61 per cent of GDP. The remaining debt is denominated in Australian dollars.
And meantime, all those Australian companies with overseas operations are looking at a windfall.
Last but not least, the tourist industry, which has been going through a rough period, will benefit from a double whammy. Australia will be cheaper for international visitors while locals might take the fall in the dollar as a cue to explore some of the delightful holiday spots from Broome to Hobart and all spots in between. Oh, and the good news is they take Australian dollars.
