September 13, 2011, 11:10 am
Yahoo!7
.Dollar's meteoric rise
The Australian dollar could reach new heights as global markets recover, spelling disaster for some exporters.
The Aussie dollar could shoot up by 20% over the next 12-18 months, according to one of the country's top economists.
Small businesses face the daunting prospect of an Aussie dollar rising to US$1.20 or even US$1.30 when the global economy eventually recovers, with developing countries in Asia continuing buy vast amounts of Australian commodities, according to Shane Oliver, chief economist at AMP Capital.
Oliver says that while the short and medium term outlook is uncertain, with so much negative news coming from the US and Europe, once a recovery does set in, the Aussie could shoot up to levels that nobody would have dreamt possible just a couple of years ago.
“If the global economy continues muddling around then we will most likely stay around current levels or rise a little to around the US$1.10 mark” said Oliver. (For a related reading, see Market Meltdown: a Small Business Survival Guide)
“But when the global economy begins growing again, which may take some time, we will see the emerging economies such as China really driving world growth. These countries are so commodity intensive because they are industrialising at such a pace, it will increase demand for our commodities and that in turn will push the Aussie dollar even higher, especially as the US is likely to embark on more monetary easing (printing money) which weakens its own currency relative to the Aussie.”
Oliver says investors need to park their money in one currency or another, and choices are limited. A weakening US dollar means they may look to the Euro or British pound, but both have their own structural problems which make them unattractive. While the Japanese government will do whatever is necessary to stop the Yen appreciating and making its exports uncompetitive.
Such an enormous jump in the Aussie dollar will be disastrous for many sectors of the Australian economy, such as tourism, exports and education, which relies on so many foreign students. (For a related reading, see 160,000 Jobs To Go By End Of Year)
But Oliver says it is up to the state and Federal Governments to help businesses become as competitive as possible.
“We need to get rid of all the roadblocks that impede our businesses at the moment, improve productivity and efficiency so that we improve our chances of competing effectively in the global marketplace. We won’t have many ways of reducing the strength in our dollar, so we will have to learn to live with it.”
However, other currency experts are more sceptical, and say that the growing economic problems around the world point to weakening demand for commodities, which in turn will weaken the Aussie dollar.
“We think the problems facing the global economy will act as a drag on commodity prices and on the Aussie dollar” said Joseph Capurso, currency strategist at CBA.
“If we get a recovery then we will probably head back up to $1.10 again but think that is unlikely given the current problems facing Europe and the US.” (For a related reading, see The Key To Retail Success)
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