- The Australian dollar has fallen to a 2.5 year low against the greenback. It also fallen heavily against most other major currencies.
- The lower currency, along with firmer global economic growth, has helped to boost the value of Australian services exports, particularly for tourism.
- Macquarie Bank estimates that a sustained 10% real Australian dollar depreciation typically boosts Australian GDP growth by a cumulative 1-1.75 percentage points (ppts) over two to three years. The AUD has fallen by slightly less than that in trade-weighted terms since late January.
The Australian dollar has been in the news this week, falling to the lowest level since February 2016 against the greenback.
It’s also under pressure against the major crosses, leaving the Australian dollar trade-weighted index teetering just above multi-year lows.
While bad news for anyone relying on the Aussie to fund investments or travel abroad, it’s recent slide does have its benefits, as seen in the chart below from ANZ Bank.
It shows the value of Australian exports going back to 2005, including the value of services credits, an often overlooked component of the trade balance given the sheer size and value of Australia’s resources exports.
After a prolonged period of stagnation between 2008 to 2013, coinciding with weak global economic growth and an elevated Aussie dollar, the value of services exports have risen sharply over the past five years, undoubtedly helped by the lower Australian dollar.
In particular, tourism-related services exports — the largest component — have steadily increased, encouraging overseas guests to holiday on our shores.
Along with strength in the value of commodity exports, this has helped Australia to record a string of large trade surpluses, helping to offset the impact of the lower Australian dollar making imports more expensive.
It’s little wonder why trade has contributed handsomely to Australian GDP growth in the first half of 2018.
According to analysis from Macquarie Bank, a permanent 10% real Australian dollar depreciation typically boosts Australian GDP growth by a cumulative 1-1.75 percentage points (ppts) over two to three years, helping to boost the value of services exports and limit demand for imports.
And faster economic growth usually helps to reduce unemployment, boost employment and lift worker wages.
So while the lower Australian dollar will not be welcomed by those looking to use it overseas, better prospects for employment and wage growth may, in the end, mean you’ll have additional Aussie dollars in your pocket to spend.
Better still, if you’re in need of a holiday, why not do it at home.
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