The Falling Australian Dollar

When many people think of the idea of a “weaker” Australian dollar, they seem to panic. It’s spread all over the media and positioned as if it was a recession or natural disaster. For investors, the issue is working out the consequences of a falling Australian dollar and the benefits. But first, let’s find the root of the falling Australian dollar, and work upward from there.

 

So, what are some of the possible reasons for a falling Aussie dollar? It isn’t a straightforward answer. It is a sum of certain things happening in the global macro economy over the last few years. The first possible reason is one to do with monetary policy. Many large nations across the globe took part in aggressive quantitative easing over the last 6-7 years. When we increase the volume of a currency, the relative buying power or value of the Australian dollar increases.

 

In addition to this, as growth slows in China, we see a contraction in demand within the commodities market; leading to a plummet in the price of iron ore.

 

A weak Australian dollar isn’t only bad news. The Australian dollar’s strength over the last few years has resulted in a loss of competitiveness within the global economy. A weak dollar should give back some of our much needed competitiveness and contribute to an increase in the volume of net exports. Sectors like tourism, international education, and foreign investment will experience a boost, whilst many of our domestic importers will feel their belts tighten and prices increase.

 

So what’s the market like for an investor? Commodities are not in the greatest place right now, they are sliding down and don’t look to be picking up in the next few weeks. You’ll probably see an increase in demand for domestic goods, instead of buying online from overseas. Companies that rely on exporting overseas and catering to Australian consumers as well are the most attractive investments in these times. The easiest way to do that is through P2P (marketplace) lending, where the borrower is a private company, it’s hard to invest into private companies without connections, and certain Australian marketplace lenders offer investments into lucrative corporate opportunities.

 

In conclusion, a falling dollar isn’t a bad thing at all. It’s probably good news for us right now; there are much bigger fish to fry within the Australian economy. Most diversified portfolios will be able to sustain themselves through this period of economic down turn.

 

Leo Tyndall, CEO of Marketlend,  a P2P lender, Marketlend at marketlend.com.au.

This is not an advice, and any investor should seek independent financial advice prior to investing.