The Australian dollar is continuing to trade comfortably above US$1, and while that means good deals for travellers and shoppers, there will be some shortfalls, as pointed out by the government.
In its Mid-Year Economic and Financial Outlook (MYEFO) Treasurer Wayne Swan noted that the stronger local currency will wipe a projected $400million from the government’s bottom line. As for overall tax revenue, it’s expected to be down around $10billion.
Still, he says Australia is on track to return to surplus in 2012/13.
Ironically, the area where tax revenue is likely to be hit hardest, will be the area where it has been expanded the most, namely the Minerals Resource Rent Tax. Most mining contracts are signed in US dollars and that means Australian companies are receiving less and are less profitable.
Let’s not forget though, the rise in the Aussie is predominately because of the weakness in the greenback.
Only last week, the US Federal Reserve essentially printed US$600billion, injecting that into its money markets, and stimulating the economy. That was more than the US$500billion expected. The end result further weakened the Greenback.
That same week, the Reserve Bank of Australia unexpectedly lifted interest rates, widening the interest rate differential between the Aussie and US, making our currency more appealing to foreign investors.
For consumers, the stronger Australian dollar ahead of Christmas is great news….and it should be for retailers, but shoppers are driving hard bargains.
The NAB business confidence index eased from +10.1 to +8.1 points in October to its lowest level in 15 months. Businesses are trimming future orders and profitability is tracking backwards.
Despite a stronger employment market, higher interest rates are making consumers more savvy. They’re finding it harder to part with their cash, wanting bargains, and are increasingly only buying sale items. Any item retailers import, have to be slashed in price for sale to attract budget conscious consumers. In fact, it’s not just imported items, but most things on the shop floor. That’s why there are so many ‘on sale’ signs at the big department stores.
The higher Australian dollar should also mean petrol prices weaken, but the rise in the oil price has prevented that from happening.
But what is up, is the gold price, above US$1400 per ounce; a new record. Bullion prices rose around six per cent since the Federal Reserves Quantitative Easing measures on Wednesday mentioned earlier. To a smaller degree, heavy buying from India, an increase of 25 per cent last week, fuelled prices ahead of its Diwali festival, or the festival of lights, in which gold gifts are exchanged or used to decorate homes.
So if you’re looking for a Christmas gift, and gold’s out of your price range, head down to your local stores and drive a hard bargain, you’d be surprised at what you can probably get. Don’t forget, you can probably get even better deals online, especially from offshore sites, but you won’t be stimulating our economy at the same time.
