Aussie’s darkest hour: but is it a GFC repeat? 52



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The Aussie dollar fell below 0.70 today for the first time in a long long time and GDP numbers disappointed.  But is this the beginning of a world of pain or is it a bump in the road?

70 cents for the Aussie is a massive psychological barrier and the lowest it has been in more than 5 years. It leaves many in the world wondering where we fit in the next part of the cycle. Fairfax media are quoting Fortress Hedge Fund Manager David Dredge as calling the beginning of a downtrend.

“August 2015 will go down in the record books, much like July 2007 or July 1997, as the beginning of the coming contractionary cycle,” said David Dredge, the co-chief investment officer of Fortress Convex Asia Fund.

Australia relished our ties to China in the GFC when the Chinese economy continued to perform, but as the ripple effect of declining consumer spending in America and Europe slows our biggest trading partner it is clear our previously exciting economy is no longer the global hot sauce it used to be. Today’s GDP numbers came in at 2.0, below the disappointing target of 2.2 percent for the year, gutting for hopes of a recovery in confidence anytime soon. The Reserve Bank has left rates on hold this week, and they are likely drawing satisfaction from the dollar’s drop which puts money back in everyone’s pockets in fuel, and the prices of imported products.

Australia has long been the place that is punished when international currencies trade into new cycles. Some experts call us “America’s ATM”, that is, Austalia is the place that global investors have been housing their money to enjoy relatively high interest rates and “carry trade” while the US and Japanese rates have been extraordinarily low.  But with American confidence on the rise, we’re the place everyone draws their dollars from, to invest in more attractive locations with higher interest rate returns.

Yahoo 7 - AUD/USD 5 year chart
Yahoo 7 – AUD/USD 5 year chart

David Dredge says “capital is draining from the emerging markets as conditions have tightened, and has been since the “taper tantrum” of May 2013. In December 1999 the point wasn’t whether you should invest in Apple or Microsoft. The point was they were both going down [as the tech bubble deflated].”

While CNBC reports Sean Callow, Senior Currency Strategist at Westpac is not so concerned saying “The Aussie’s being singled out for punishment due to its heavy trade reliance on China…It’s reflecting a gloomier outlook for China and commodity prices.”

What comes next is anyone’s guess, but it is clear as the US is looking at rate rises, the Chinese are spending less, and our economy continues to have a negative bias, the Australian market becomes a risker environment to house money in than other economies.

What will it mean for you as a consumer?  It is clear the Reserve Bank thinks the slide in the Aussie dollar could be good for consumers and consumer spending, holding rates this week.  A low dollar environment usually means:

  • lower fuel prices
  • lower prices for imported goods like electronics and motor vehicles
  • increased internal consumer spending on tourism as Australians look to holiday at home.

Will a lower dollar affect your spending choices?

Rebecca Wilson

Rebecca Wilson is the founder and publisher of Starts at Sixty. The daughter of two baby boomers, she has built the online community for over 60s by listening carefully to the issues and seeking out answers, insights and information for over 60s throughout Australia. Rebecca is an experienced marketer, a trained journalist and has a degree in politics. A mother of 3, she passionately facilitates and leads our over 60s community, bringing the community opinions, needs and interests to the fore and making Starts at Sixty a fun place to be.

  1. I was just listening to some analysts on tv and they said we have not had a full blown recession for 20 years and we are heading straight into one, unless this Liberal Government stimulates the economy now, it will be to late. I have no confidence at all that they will do that in way way shape or form. We already have massive unemployment 800,000 out of work with little hope of getting jobs

    3 REPLY
    • Growth in the last quarter was just 0.2 percent. We only reached this figure because of government spending. Without this spending we would have technically been in recession. The previous government was roundly criticised by Abbott when it used spending to avoid recession. Hypocrisy reigns.

  2. Why should we worry we’re living in Abbotts Paradise. The economy is booming, all the “captains” economic measures are working a treat, our economy is heading in the right direction, so the economy is a bigger basket case than when Labor was in power but we have done wonderfully well, we will change our currency to the peso soon, don’t be concerned we have the economy buzzing along. ALL PIGS ARE LOADED AND READY TO FLY.

  3. Canada has a similar economy to ours and faced similar conditions to what we have and they already in recession, this Abbott Government has only made things worse

    2 REPLY
    • And what do you think, labor would do better, remember every time labor gets, we end up in debt, they can’t handle money. Have a look at what dopey Dan is doing to Victoria

      1 REPLY
    • Roslyn Mcpherson-Hartley the Liberals have doubled the deficit and yes I think the ALP would do better, they got us through the GFC almost unscathed

  4. Maybe if the senate & labor idiots passed the reforms he wanted things might not be so bad, and remember the labor idiots put us in this position in the first place

    5 REPLY
    • The mentality of labor supporters ,they have very short memories and I’m sure Bill the back stabber will be so much better not

    • Short memories? Jan Bradley take a look back to the last government, i am one of the boring people who watch parliament live, they blocked everything, I remember thinking when this lot won. A little Karma will do them a world of good and they are not handling the situation very well are they.

  5. Well done Tony Abbott well done Australia you voted for him. OH THAT’S RIGHT IT’S ALL LABORS FAULT still singing that sad song

  6. begin of all that abbott and his cronies planned for, rich go on untouched, poor end up in the street homeless and starving to die which is the plan.

  7. The position we are in has its beginnings before the present government for heavens sake.

    11 REPLY
    • Mike here-yep, in johnnie me lads GFC I reckon or don’t you want to go back that far Peter?

    • If it hadnt been for a Labor Govt, we would be in recession now like Canada with a comparable economy and a Conservative Govt since 2006.Luckily for Canadians they get to have elections next month.Their PM ,Harper is in trouble like Abbott.

    • So true peter, have you read the treasury’s report, released last Friday? This has all occurred in the last 12 months, nothing to do with Labor. It’s about time the Liberals grew up and took some responsibility for their incompetence

      Today the national accounts — Australia’s financial books — were released and Tony Abbott has left our economy wallowing in mediocrity. Here’s 6 things you need to know:

      1. Unemployment has increased from 5.7 to 6.3 per cent to now be at 13-year highs.

      2. For the first time in over 20 years, more than 800,000 Australians are out of work.

      3. The Australian economy is stuck at below-trend growth of 2 per cent, with annual growth trending down since Hockey’s damaging first budget last year.

      4. Consumer sentiment is 11 per cent below where it was at the election.

      5. New taxes and charges mean Australians are paying more tax than any time since the Howard Government, and rising each and every Budget year.

      6. The budget deficit doubled in just the last 12 months.

    • Well Peter there were definitely a significant number of brain fades in September 2013,there is still a vestige of that trauma remaining I see.

    • Cant fix ALL Labor;s mistakes in a couple of years, will take 20 years to repay the debt

    • I have Peter, I also noticed we did ok with the GFC when Labor was in charge. Strange that this time around we have growth lower than Greece. I can’t wait until the recession really hits.

    • Agree Libby, not to mention the chaos the current mob of incompetents are creating They can’t even agree on anything among themselves, one says one thing to the press and another one says something else

  8. But Mathias Cormann said just tonight that it is all due to the mess left by the Labor Gov’t.

    3 REPLY
    • When will this government accept responsibility for the mess they have made since coming into power and stop blaming everyone else?

    • lucky you Robert I can hardly ever understand what he is saying, so I switch him off, they have been in Government for 2 years now, time to take their own blame !!

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