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.

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