Why a lower Aussie dollar is good for the economy

Aussie dollar coin

The good news is that further depreciation of the currency is actually positive for investment as the AUD heads towards an exchange rate of USD70 cents. A lower Aussie dollar is always beneficial to the Australian economy. Depreciating asset prices and labour costs, which were previously very expensive, become more competitive in global markets.

In essence, we need to accept that Australia is competing on a global level and our economic prosperity is heavily reliant on commodity prices. The paradox is that the currently depreciating AUD is not about commodity prices at all. On this occasion it was driven down by higher labour market utilisation and higher interest rates in the US.

Hence, there is less demand for the Aussie dollar when there are so many competing opportunities in the growing US economy.

Over the past few years, the Australian economy has come off a massive level of investment in the mining industry. East-coast housing construction and booming residential property prices have taken up the slack from the downturn in mining construction.

Now that the housing led recovery has stalled, where will the growth come from?

Australia must adjust to a lower US exchange rate and realise the benefits from lower labour costs and assets prices. The sooner this happen, the sooner investment across all sectors will recover to drive growth in the Australian economy.

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