The Aussie dollar takes a tumble

The Australian dollar has fallen against its American counterpart – don't expect a rebound.

The Australian dollar, or Aussie, lost 3.5% against its US counterpart last week its worst weekly showing in over a year. Don't count on a rapid rebound.

In recent years, the economy has been propped up by Chinese demand for metals. But with China weakening, mining investment is dwindling, and it's hard to see what will replace it.

In recent years, the strong Aussie has made it costlier for Australian manufacturers to sell their goods abroad, while it has also become more expensive for foreign manufacturers to operate there.

Meanwhile, the consumer boom of the 2000s left households with high debts so most are now looking to pay down their borrowings despite low interest rates. Unemployment close to a 12-year high also militates against stronger consumption. It's still not clear "how the economy will cope with the end of its mining boom", says Capital Economics.

The upshot is that if there is any change in interest rates soon, it will be a cut. Bank of America Merrill Lynch expects the Aussie to be the weakest developed-market currency next year. Compared to the US dollar, which is benefiting from expected higher interest rates, the outlook is especially bearish.

Recommended

What’s in Biden’s global corporation tax proposals?
Global Economy

What’s in Biden’s global corporation tax proposals?

US president Joe Biden’s administration recently proposed a universal model for taxing global companies. Saloni Sardana looks at what's involved.
13 Apr 2021
Why all eyes will be on US inflation data this week
Inflation

Why all eyes will be on US inflation data this week

As the world comes out of lockdown and demand for goods and services rises, attention will shift to inflation and what it means for interest rates. Th…
12 Apr 2021
What China’s new red dawn means for Hong Kong
Chinese economy

What China’s new red dawn means for Hong Kong

China has once again moved to tighten its control over the former British territory and global financial centre. What will remain of the old Hong Kong…
10 Apr 2021
The charts that matter: gold up; dollar down
Global Economy

The charts that matter: gold up; dollar down

Gold rallied a little this week, while the US dollar drifted. Here’s how the charts that matter most to the global economy reacted.
10 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021