Oliver's Insights - Australian dollar parity - is it sustainable and what is the impact?
18 Oct 2010 - This note looks at the outlook for the Australian dollar (A$) following its breach of parity against the US dollar (US$) and the implications for the economy and share market. The key points are as follows:
- For the first time in 28 years, the A$ has spiked above parity against the US$, highlighting the culmination of a long, hard slog back to form for the Australian economy. In a longer-term context it is the last 28 years below parity that is the aberration.
- While the A$ is vulnerable to a correction having risen so fast since late August, unless the global economy tanks again it is likely to average above parity over the next few years on the back of strong commodity prices and the relative strength of the Australian economy. Probably at around US$1.10.
- While the high A$ will make life tough for trade-exposed companies without a natural hedge, on balance it is more of a positive for the Australian economy. It is unambiguously positive for consumers and will help limit the extent to which interest rates have to rise.
