Strong Australian Dollar Sign of Strong Economy

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The Aussie dollar once again moved up against the greenback, nearing 87 cents. The strength of a currency is often a referendum on the strength of an economy. Australia’s economy has some notable weaknesses, namely the trade deficit and the high level of household debt as a percentage of GDP (see yesterday’s letter). But it also has some obvious strengths which make it appealing to investors.

The Australian Bureau of Agricultural and Resource Economics—which has the clumsiest name of any government agency we’ve ever encountered—announced earlier this week that Australian commodity exports should generate nearly US$144 billion in sales in 2007 and 2008. The stronger Aussie dollar actually lowers the sales figures a bit. Commodity sales priced in US dollars are then converted back into the Aussie. With a falling greenback, Aussie export earnings take a hit.

So far, however, high commodity prices—especially for nickel and copper—have kept export sales growing. With BHP (ASX:BHP) and Rio Tinto (ASX:RIO) negotiating a hefty increase in the iron price for next year, and with a rebound in prices for thermal and coking coal likely, the Australia-China parternship looks as strong as ever. Not just boom. Sonic boom!

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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4 Comments on "Strong Australian Dollar Sign of Strong Economy"

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kage
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Strong economy. Ok if you say so.
Just don’t look at the debts.
Strong with respect to what ?
USD ?
Are you serious ?
To move ‘up against the greenback’, one needs only to stand still.

A great pity if the contracts are in USD too.

You might also consider who pockets the profits from these sales.

kayle
Guest

‘Me too’ kage.

Measuring pretty much anything against the US dollar these days is nothing more than a feel-good exercise.

AUD is rising against the euro lately. Nothing too drastic though, about middling since July/August highs.

‘Me too’ re the elephant in our living room, the debt.

christina
Guest
Once when I was visiting someone in hospital, the guy in the next bed looked like a big strong, fit tanned bodybuilder. Like Adonis himself. Why would he be here in hosptial I thought to myself, such a young strong strapping young man. Then if ound out that he had taken steroids to make heis muscles bigger, and he had had a heart attack. While he looked big and strong and fit, he was actuallly paralysed and he couldn’t move or talk. I felt very sorry indeed for the poor guy, and it proved to me very much that just… Read more »
R."Mitch" Mitchell.
Guest
Everything I read about the Australia Economy, seems to indicate to me,.that, although people live on plastic,..all is ok,..Great Economy. It would also indicate to me,. that people have their heads in the sand, when they know full well,that they are being missiled by the “Fantastic Run Economy”. Each and every household in Australia is in plastic for $1.800 because the working people spend more than they make,.and the Government say they have a great Economy. People can not afford houses,.and the land lords make it impossible for the people to rent. Something like 48 thousand single mothers do not… Read more »
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