Many Australians watching the finance segments on television are probably horrified or shocked by the news that the Australian dollar is trading around US71 cents and view it as bad news.
After all, it often comes with other bad news such as the stock market falling and commodities prices crashing. Viewed alongside those two, a falling Aussie dollar must also be bad news.
But that is far from the real truth.
A lower Australian dollar is good news for many of us personally, our economy as well as Australian companies. Ok, it might make you think twice about expensive holidays overseas – but you might be more inclined to travel locally. If you think about that for a moment, travelling within Australia means your dollars are mostly going into the hands of Australian businesses.
A pick up in business for them might mean hiring extra staff, spending more on marketing/advertising, or encourage them to invest more into improving their business. That has a flow on effect to other businesses and generates growth. It's also an incentive for overseas visitors to travel to Australia and spend up big while they are here.
For our economy, it means more Australian dollars for our commodities and offsets some of the falls in commodity prices. That means rather than going out of business, smaller, higher-cost miners actually survive until commodity prices begin rising again. It also means fewer people ending up on the unemployment queue.
A lower Australian dollar also means that locally produced goods can compete on a more effective basis against imported products. That means consumers buying more Australian goods and services – another plus for the economy.
For investors in Australian companies with offshore operations – of which there are a host nowadays – the lower the Australian dollar the better, as it boosts company earnings – and likely dividends.
US to raise interest rates
With the US central bank appearing close to raising their interest rates, that will likely have the effect of boosting the US dollar higher, meaning the Australian dollar should head even lower. ANZ predicts that we could even see an AUD/USD exchange rate with a 5 in front of it – as it falls below US 60 cents.
Many investors might be horrified at that thought. But again, it would be good news for our economy. Low interest rates for six years in the US have kept the US dollar lower against other major currencies allowing the US economy to bounce back from the depths of the GFC. It also means it's highly likely to keep Australia out of a recession anytime soon.
Foolish takeaway
The next time the financial commentators tell you the Australian dollar is falling, don't be disappointed. It really is good news.
