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Australian dollar hits seven-year low

The Australian dollar hit a seven-year low against the US in January, although the weak exchange rate has Australian business breathing a sigh of relief

The Australian dollar hit a seven-year low against the US in January, although the weak exchange rate has Australian business breathing a sigh of relief

The Australian dollar is at levels against the US dollar last seen in 2009, having slumped since reaching highs above US $1 between 2011 and 2013. It is currently sitting around US $0.70. The devaluation can mainly be attributed to end of the mining boom spurred on by Chinese manufacturing. Combined with stronger than expected economic results from the US and falling commodity prices, the Australian dollar has continued to slump.

However the weaker dollar has proven a boon for Australian industry. A falling dollar has rejuvenated Australian tourism as it becomes a cheaper destination for international travellers. According to the Australian Bureau of Statistics, short-term visitor arrivals to Australia are at an all time record high. Particularly high are visitors from China, whose numbers increased by 27.8 percent in November 2015 over the previous year.

The agricultural industry is also benefiting from the weaker Australian dollar as its exports become more desirable. According to a report from ABC Rural, for every cent the Australian dollar slips against the US, between AU $3 and AU $4 per tonne is added to Australian wheat values. At the peak of the mining boom Australian exporters in both agriculture and manufacturing suffered thanks to uncompetitive prices.

Happy with the current economic results, the Reserve Bank of Australia has decided to keep interest rates on hold at two percent. This is the ninth month in a row that interest rates have been put on hold.

Australia’s position is in contrast with markets elsewhere struggling to control their exchange rates and manage inflation. Japan and Europe have pushed interest rates into negative territory, partially to devalue currencies and encourage exports.

 

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