From skyrocketing rents in remote mining towns to the decline of the auto industry, Australia is grappling with the downside of world-beating economic growth that has driven the nation’s currency to record highs.
Policymakers and executives at the Bloomberg Australia Economic Summit in Sydney yesterday singled out the local dollar’s strength as the biggest challenge for business, while conceding there’s little that can be done to restrain it. Terry Davis, managing director at Coca-Cola Amatil Ltd., said the Aussie is “decimating” manufacturers, while Robert Mead, head of portfolio management in Sydney at Pacific Investment Management Co., said businesses are deferring spending.
Australia’s defiance of the global slowdown is now backfiring on manufacturing after the currency soared 75 percent against the U.S. dollar and 89 percent versus the yen from its low in October 2008 after the collapse of Lehman Brothers Holdings Inc. roiled financial markets. The government and Reserve Bank of Australia say the cash flowing into the economy — fueled by quantitative easing in the U.S. and Japan — is beyond the control of policy makers in a small nation.
“That’s the hand that the world has dealt us,” RBA Assistant Governor for economics Christopher Kent said at the summit, reiterating that the central has no plans for intervention to weaken the so-called Aussie. “Businesses in a number of industries are under quite a deal of pressure — part of that’s because of the exchange rate.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.