A sharp fall in the Australian dollar may provide a short-term boost to economic growth, but also risks re-igniting inflationary fears in the longer term, dealers say.
The Aussie dollar has slumped almost 20 percent since reaching a 25-year high of US$0.9849 in mid-July, when many economists predicted it would reach parity with the greenback for the first time since it was floated in 1983.
But falling commodity prices and Australia’s first interest rate cut in almost seven years this month saw the currency slip below US$0.80 for the first time in 13 months last week.
While it recovered slightly to close at US$0.8063 on Friday, market watchers said the currency was likely to fall further amid expectations that the Reserve Bank of Australia (RBA) would again cut rates to offset an economic slowdown.
“With commodity prices still falling, further interest rate cuts likely from the RBA ... further falls in the Australian dollar are likely over the next six months or so, with next stop being around 75 US cents,” AMP Capital Investors chief economist Shane Oliver said.
The declining currency is tipped to significantly impact on Australia’s trade sector.
“While this may provide a short-term boost to the economy via the terms of trade, it also creates upside risks to the outlook for tradeables inflation,” said Warren Hogan, ANZ Bank’s head of Australian economics and interest rate research.
He said a weaker currency would affect the terms of trade — the ratio of export to import prices — by making exports cheaper to overseas customers and imports more expensive for Australian consumers.
“This should be a positive for net exports and for overall GDP growth,” Hogan said.
The longer-term problem stems from what Hogan terms “tradeables inflation,” when the cost of living in Australia rises because of the higher prices consumers have to pay for imported goods.
The threat from rising inflation was the major reason the Reserve Bank hiked Australian interest rates to among the highest in the developed world before this month’s policy reversal in the face of slowing growth.
Any indications that inflationary pressures were on the rise were likely to make the central bank more cautious about further interest rate cuts, Hogan said.
The bank has predicted headline inflation will hit 5 percent next year, but says it is then likely to return to the official target rate of 2 percent to 3 percent if wage and demand growth remain moderate in the near term.
DISCONTENT: The CCP finds positive content about the lives of the Chinese living in Taiwan threatening, as such video could upset people in China, an expert said Chinese spouses of Taiwanese who make videos about their lives in Taiwan have been facing online threats from people in China, a source said yesterday. Some young Chinese spouses of Taiwanese make videos about their lives in Taiwan, often speaking favorably about their living conditions in the nation compared with those in China, the source said. However, the videos have caught the attention of Chinese officials, causing the spouses to come under attack by Beijing’s cyberarmy, they said. “People have been messing with the YouTube channels of these Chinese spouses and have been harassing their family members back in China,”
The Central Weather Administration (CWA) yesterday said there are four weather systems in the western Pacific, with one likely to strengthen into a tropical storm and pose a threat to Taiwan. The nascent tropical storm would be named Usagi and would be the fourth storm in the western Pacific at the moment, along with Typhoon Yinxing and tropical storms Toraji and Manyi, the CWA said. It would be the first time that four tropical cyclones exist simultaneously in November, it added. Records from the meteorology agency showed that three tropical cyclones existed concurrently in January in 1968, 1991 and 1992.
GEOPOLITICAL CONCERNS: Foreign companies such as Nissan, Volkswagen and Konica Minolta have pulled back their operations in China this year Foreign companies pulled more money from China last quarter, a sign that some investors are still pessimistic even as Beijing rolls out stimulus measures aimed at stabilizing growth. China’s direct investment liabilities in its balance of payments dropped US$8.1 billion in the third quarter, data released by the Chinese State Administration of Foreign Exchange showed on Friday. The gauge, which measures foreign direct investment (FDI) in China, was down almost US$13 billion for the first nine months of the year. Foreign investment into China has slumped in the past three years after hitting a record in 2021, a casualty of geopolitical tensions,
‘SOMETHING SPECIAL’: Donald Trump vowed to reward his supporters, while President William Lai said he was confident the Taiwan-US partnership would continue Donald Trump was elected the 47th president of the US early yesterday morning, an extraordinary comeback for a former president who was convicted of felony charges and survived two assassination attempts. With a win in Wisconsin, Trump cleared the 270 electoral votes needed to clinch the presidency. As of press time last night, The Associated Press had Trump on 277 electoral college votes to 224 for US Vice President Kamala Harris, the Democratic Party’s nominee, with Alaska, Arizona, Maine, Michigan and Nevada yet to finalize results. He had 71,289,216 votes nationwide, or 51 percent, while Harris had 66,360,324 (47.5 percent). “We’ve been through so