Australia12 Nov 2013
Introduction by Alan Leesmith, International Director IAA-Advisory
Five years ago, the Australian dollar dropped to the point where it was worth just a little more than US$0.60, but while the rest of the world suffered in the global financial crisis, Australia held steady. The Australian dollar strengthened to the extent that two years later it reached parity with the US dollar, and it remained above par for most of the time until May 2013, when it fell back. As I write, it is hovering at below US$0.95 and the Reserve Bank of Australia (RBA) has indicated that it believes it needs to stay down.
It was the strength of Australia’s many natural resources and a booming Chinese market that was such a key factor in Australian economic strength, but now the RBA Governor has said that commodity prices will fall, putting sustained downward pressure on the Australian dollar. That still leaves the currency far stronger (some 90%) than five years ago, something other developed nations can only dream of.
However, gone are the days when the Australian mining industry was booming on the back of the growing and sustained demands from emerging markets. Their slowing growth rates raise the possibility of having some impact on the earning potential of the Australian economy. In addition, Australia is now, not surprisingly, facing some domestic economic challenges. The fact that the developed world is finally showing signs of economic recovery does not have the same potential to benefit Australia, where the emerging markets play a far more significant role.