What does the dropping Australian dollar mean for you?
| Filed Under: Economy
Last week the Australian dollar hit a six-year low, trading at 75.6 US cents on Wednesday morning.
Across the economy the dropping dollar has varying affects, creating opportunities for businesses in tourism, education, agriculture and manufacturing - because their products and services become cheaper for overseas buyers - but making it costlier for those importing goods, such as retailers.
But what does it mean for you?
“For the average Australian household there can be an impact in terms of lifting overseas holiday costs, increasing the cost of imported goods and buying goods online as well as fuel prices because we derive a lot of our fuel from overseas,” said CommSec economist Savanth Sebastian.
Travel
When the dollar falls, overseas travel costs more. Mid-2014 the Australian dollar bought 94.49 US cents. That means in less than a year, you’ve lost just over US$18 for every $100 spent in US dollars.
If you’re travelling overseas, you may need to increase your budget or carefully consider how long you’ll be travelling for and what you’ll be doing. Some destinations will be more cost-effective to travel to than others. Despite the drop against the US dollar, the Australian dollar has fared better against the Yen and Euro, so Japan and Europe may still be good options.
Alternatively, some Australians will look at travelling domestically until the dollar lifts.
“When you have sluggish growth across the economy you start to see some other sectors starting to get a boost such as domestic tourism,” said Sebastian.
Shopping
Just as with the price of travel, the cost of online goods from overseas increases. While it may not mean too much when buying a book or DVD from Amazon or Ebay, buying clothes, electronics or other expensive items online becomes costlier.
On a broader scale, a drop in the Australian dollar can mean that local retailers have to up the prices they charge us. When it becomes more expensive to import goods, retailers have a few ways they can respond:
- Increase their own prices
- Absorb the loss
- Make changes to products to maintain their price points.
Petrol
Over the last few months petrol prices have dropped significantly as lower global demand for oil has coincided with higher production, sending the value of the commodity down.
However, the cost of petrol could increase in the not too distant future if oil prices were to bounce back while the dollar remains weaker.
“Because Australia buys a lot of fuel from the Asian region which is all priced in US dollars, a falling Australian dollar means that we have to purchase less fuel or it becomes more expensive to make the same purchase. At this point we haven’t really noticed the falling currency in terms of impact on fuel prices because oil prices have fallen as well,” said Sebastian.
Why does the dollar drop?
The market value of a currency is essentially determined by how much demand there is for it relative to other currencies.
The combination of a strengthening US dollar and slow growth in China, which affects commodity prices here in Australia, are two contributors to the Australian dollar's recent decline. Sebastian sees the influx of cash into the US economy as the key reason for this latest drop.
“We’re actually seeing a flight of capital back to the US dollar, that’s the key driver for the drop at the moment. The US currency is the reserve currency of the globe and it’s coming back quite strong and is one of the key drivers in terms of pushing down the Australian dollar,” he said.
No comments:
Post a Comment