The Upside of a Dive to 85 for the Australian Dollar

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Fidelity analyst Heather Hagerty says a lower Australian dollar is beneficial but the speed of the currency’s decline ‘is the real problem’. Translation: the lower dollar will be good for mining businesses, industrial stocks, and exporters. But if the currency falls too far too fast, it could accelerate the flight of foreign capital from the country.

Goldman Sachs has cut its growth and currency forecasts for Australia, according to today’s Wall Street Journal. Goldman reckons the Australian dollar will trade at 85 cents in the next twelve months. It further reckons Australia has one chance in five of falling into recession as a result of lower export prices and a weaker dollar.

These guys. Really. A few months ago they were calling for a floor of 90 cents in the Aussie dollar. And with any forecast, you never know how much a given company is simply talking its book, or saying one thing while doing another. It’s no use making your currency forecasts after the unit has lost nearly ten per cent in the last two months.

Still, Australia hasn’t had a recession in 22 years. If there was ever a time for one, with falling export prices, the end of the big pipeline of resource investment, and a weaker dollar, now is that time. Stay tuned for more on this.

In the meantime, not everyone in our Albert Park offices is as gloomy as your editor. Diggers and Drillers editor Alex Cowie views the falling dollar like rain drops on a parched desert. Alex is counting on the weaker dollar to take some cost pressures off the beleaguered mining sector. He says the Metals and Mining Index on the ASX has done relatively better than financials over the last two months. A dive to 85 for the Aussie dollar could be the catalyst for the punters coming back in.

Even the fatally flawed US dollar is piling pressure on the Aussie. Ratings agency Standard and Poor’s revised its near-term outlook on US government debt from ‘negative’ to ‘stable’.  S&P was the only one of the big three ratings agencies to cut the US credit rating from AAA to AA+ in August of 2011. Its latest action should cheer the dollar bulls.

But the dollar bulls are idiots. If anyone thinks the long-term US fiscal position is improving, he’s either a paid agent of the state or a first class moron. And you can put that in your big, menacing, know-it-all PRISM database and smoke it, US National Security Agency. Failed states grasp for power and tomorrow your editor will show you why America’s domestic spying scandal is both a travesty for civil liberties and the sign of an impending revolution.

Regards,
Dan Denning
for The Daily Reckoning Australia

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From the Archives…

A Disguised Depression in the US Economy
7-06-13 – Bill Bonner

A Genuine Economic Recovery Requires a Genuine Bust
6-06-13 – Greg Canavan

Why it’s Going to Get Ugly When Interest Rates Rise Again
5-06-13 ­– Greg Canavan

Big Trouble in the Australian Economy… Everybody Relax
4-06-13 – Greg Canavan

Why Growth Stocks Could be the New Target of the Big Money Hunt
3-06-13 – Dan Denning

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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7 Comments on "The Upside of a Dive to 85 for the Australian Dollar"

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Ross
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Import price inflation will be no good for the majority of this consumer- services driven economy but there will likely not be much choice other than to face it with whatever resources we can muster. The preconditions that would make it so (import price inflation will only occur when risk off / reverse carry trade is underway) and that will be no good for Australian bank wholesale funding and hence lending in this economy. They say currency swaps alone will likely cost 6% alone under the new global rules (and why would it not be so in a real market… Read more »
Jeff
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I don’t know what you guys been smoking lately, must be great stuff…impending revolution??! Right and Putin is human right activist that’s why he’s offering asylum to Snowden and US is fighting terrorism that’s why they support &arm Syrian Rebels (staunch supporters of Al Qaeda)… there will be no revolution because that would be unpatriotic which will require extermination by the patriot act and if it’s not there already then it’ll be in patriot act markII

shortchanged
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A falling Dollar might be good news to you blokes, but not to me, my super is changed into Euro thingys and its bad news, I am sure you have influence with that nice Mr Stevens so let him know we are suffering and do something. As for the GCHQ/NSA/Prism fiasco, be careful what you say, as you know certain words are ‘trigers’ to the computers to start recording. My wife talks to her sister on the phone in her own language, not Engish, and said a word which a computer translation could be .b. you know the thing which… Read more »
truth and integrity
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You give me your $1.05 and I’ll give you 85 cents, multiply that by a trillion! You can put the check in the post. A 20 cents decline in the $AU causes a 40% increase in the debts if you have 50/50 equity/debt. A=E+D The equity doesn’t change rapidly and may be seen as constant. However going from 100=50+50 to 120=50+70. You need 20% more to pay for your asset and so you see your debt increase 70/50 (40%). Government debt goes from $400billion to $560billion and private from $800billion to $1.12trillion Lowering a countries $value is an admission of… Read more »
Lachlan
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Neither do I support a weakening of the AUD. We cant afford the price inflation. However it is baked into the cake. I thought we would see a blow off top in the AUD first and still think we will after this shake-out.

Spanner
Guest

Great, I and 700 of my fellow workers have lost our jobs to outsourcing to China. All of the manufacturing equipment was also sent there, now you tell us that the dollar is falling to a point where we could have been competitive, that’s salt in the wound. Thank god l turn 65 in January and own my own home, but l have 3 adult children who struggle through this mess.

BP
Guest

Spanner, you raised them to adulthood. Forget any notion that you now owe them anything. You own your own home… and you most likely qualify for a pension. Are you now going to make the biggest single mistake of your life, believing you OWE them something?!~

You made it, son. Let them now make it for themselves… .

wpDiscuz
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