Australian Dollar Falls To All-Time Low

The Australian dollar has fallen to an all-time low of 54.93 cents as measured against the American dollar.

This is the lowest point since the floating of the dollar commenced in 1983.

The currency rallied slightly to settle around 55.20 cents early this afternoon.

The currency crisis is now getting serious and will have important political consequences. Despite all the measures taken over the past 15-20 years to globalise the Australian economy, the exchange rate has steadily declined. In 1983, it was in excess of 90 cents.

The Australian economy continues to suck in imports, creating an ongoing deficit in the current account, the measurement of the balance between imports and exports.

At the individual level, the decline in value of the Australian dollar is bad news for Australian tourists travelling abroad, but good news for visitors to Australia. Those tourists arriving for a series of sporting events in Sydney will receive the most immediate benefit.

Australian exporters will benefit, but the cost of imports will increase.

There will now be an expectation that the Reserve Bank will intervene to prop up the dollar. This is usually achieved by the Reserve buying Australian currency on the open market.

A more likely consequence will be another round of interest rate rises. These are designed partly to discourage borrowing and import purchases. Politically, this represents the greatest danger for the Howard government, since recent rate increases have already eaten into the tax cuts that accompanied the introduction of the GST on July 1.

Commentators argue that the currency crisis is a reflection of a market belief that Australia is an “old economy”, still unduly reliant on primary export products and slow to take up new technology ventures. Microsoft’s Bill Gates made this point at the World Economic Forum in Melbourne this week.

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