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Decreasing Australian Dollar – Good or Bad?
The Australian dollar fluctuates up and down against its biggest rival – the US Dollar. In 2010 they stood equally matched, but before that it was the good old 80’s when the Reserve Bank was in control – not the market.
Despite these ups and downs, recently our dollar has been teetering well below the greenback, but this is not necessarily a bad thing. How this fluctuation affects you depends on your business, what you buy, how you shop, travel and several other factors. The actual dollar value is more of a relative value than a true value and the impact is different for everyone.
The Downside
The lower Australian Dollar will be noticeable for consumers looking to purchase items not domestically manufactured like; flat-screen TVs, cars, clothing, toys and other electronic devices. Businesses that rely on imports will feel the pinch with the conversion rate and in turn be pressured to increase prices. Consumers who purchase online from overseas might also feel the strain.
The average overseas traveller might think twice before heading out on that long holiday. Less buying power overseas will make the budget that much tighter and domestic travel will seem much more appealing and less costly.
The Upside
Business that rely on export will have the opposite view of the weak dollar. These industries include; manufacturing, tourism, agriculture and rural producers. These industries are dominated by the smaller enterprises.
Business owners and staff working in these industries, or supplying goods to them, will be happy to see the Aussie dollar dip well below the US dollar. It can mean more demand for products, higher sales and income at a higher conversion rate when their invoices are paid.
The tourism industry in particular thrives with the weak or weakening dollar. This industry encompasses a huge range of smaller enterprises that include; transportation services, car hire companies, tour operators, hoteliers, B&B’s, catering, local arts, and adventure companies - like wind-surfing, canoe, & bike hires.
A lower currency value means Australia is more likely to attract visitors from overseas, making it a planned destination for holiday seekers. This in turn will drive our local residents to stay put and spend locally.
The British and European backpackers are also expected to make a considerable comeback and there is a new found interest in trekking Down Under. Many factors are driving this trend, the weaker AUD and also the economic conditions and financial climate in their home countries as well.
Exporters and small manufacturers become extremely competitive with overseas producers, and this can be a bonus to consumers. The education sector also becomes more attractive for foreign students looking for overseas schools and opportunities in Australia. This has a huge knock-on effect for local accommodation providers as well as retail and other sectors.
The Big Question
So to try to answer the question – Is the weak Australian dollar good or bad? As with all things economic, it’s not that simple. It all depends on your specific circumstances, who you are and who you compete with. All these factors should include your consideration of maximising your tax efficiency as well, but if you have any questions, as always our accountants in Caulfield can help.
Disclaimer:
Hillyer Riches Management Pty Ltd is a Corporate Authorised Representative (No 466483) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL / ACL No. 223135.This document contains general advice only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.
