Outlook: Is the Aussie reaching the parity with the Greenback?
I wrote some time ago that if we break the Global Credit Crisis forepeak, obviously, the chances of the Australian Dollar reaching the greenback were absolutely high. A simple breakout to around 0.9300 and consequently to around 0.9600 on the AUD/USD would be enough to trigger investors and investment banks to start acting, meaning that the parity could be close to happen.
Even if the idea of parity with the US dollar brings a sense of pride for the Australians, there are benefits and deficits.
The key benefits will be the purchasing power of the Australians, and for that matter, the acquisitions Australian companies will be able to make overseas with a stronger currency, also the investors will have more access to cheaper stocks , consumers spending more, and a lifestyle improved and with less inflation. But we know that spending creates liabilities and debt, but on a second stage. Also, Australians will find traveling abroad less costly.
A strong Australian dollar also encourages investment in aussie equities and corporate bonds among foreign investors. Foreign investors are attracted to aussie assets given the overall strength of the local economy.
For the exporters its not much of a good deal. Australian products will have to face competition with cheaper products on the overseas markets and, and for maintaining a large production of basic materials, it can impact the Australian economy.
The tourism in Australia will slow down with a stronger AUD and the housing market will be affected (as the foreign demand towards housing investments in Australia is around 15%)
For the U.S., however, a weaker currency could affect Australians indirectly. A stop on the cycle of declining prices, commonly known as deflation, would be a concern. According to some analysts, there is a economic effect to consider. If deflation is a root of problems, if that country lower the exchange rate, that could be an effective method of defence for the US economy.
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