A low Aussie Dollar Isn’t Always Bad News

When people hear about the falling AUD/USD exchange rate, they typically go on a rant about how the Australian economy is finally done for, they regurgitate something about how the Sydney property bubble is about to burst and, given the current state of affairs, something about how the migrants will take our jobs.

I feel bad for anyone embarking on exchange in the U.S. anytime soon; things will start becoming a lot more expensive for you. Apart from that, the depreciating dollar will most probably lead to good things for the economy as a whole.

Unless you’ve been living under a rock, or completely absorbed in Semester 2 studies, the current state of the World Economy is not so hot. Russia and Brazil are on sliding down the slippery slope to recession. The dropping price of oil has hit Canada hard, letting them ski straight down into recession too. China is seeing a big drop in exports and imports, leading to a decrease in demand for commodities.

This brings us to Australia: Obviously our commodities haven’t been doing so hot recently. Riding on the back of the mining boom we’ve had a good twelve to thirteen years: we’ve doubled our GDP, been relatively unaffected by the GFC, and it seemed like everything was going awesome. But recently, mining has suffered a massive loss of employment, and many Australian mining companies are feeling the heat as the demand dries up.

So what’s to come? Well, we’re like the kid that doesn’t get braces in high-school but has to get them when we’re 22. Our dollar has been high, we haven’t been very competitive, and we didn’t invest enough into education or technology to aid our economy after the mining boom ends.

So what does this have to do with our dollar? Well, if anything, a low dollar is good news right now. When the dollar is low, our tourism, education and general exports get boosted up. It means that we will hopefully be seeing more tour buses around Canberra, and more exchange and international students around. Whether the lower dollar will make up for the drying up of the mining sector is arguable, and frankly it’s anyone’s guess right now.

The biggest argument against the economic benefits of a weak Aussie dollar is mainly one surrounding inputs to production. Many inputs to production are sourced from overseas suppliers – a weak dollar means that the prices of importing those inputs to Australia increases, which will most likely mean higher prices for the final products and thereby less demand for it. Whether or not this will outweigh the increase in demand in other sectors is arguable, but we’ll be able to see the results in a few months after the dollar drop really sinks in.

In conclusion, it isn’t the end of the world. A falling dollar sucks for most uni students; most of us would like to go on exchange or at least overseas, and we also desperately need our hand-made American hair ties for our top knots. But for the rest of Australia, hopefully its good news, we need to be as competitive as possible as the mining boom dries up, and this might be our temporary savior.

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