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What are the chances rates and the dollar will fall?

I know it is a perennial question but I am in the tourism business and I have debt over my business and my home. Interest rate cuts would really help my cash flow and hopefully it might encourage more local tourism while it could bring the dollar down. That would be a perfect world if rates fell and the dollar followed. What are the chances of this happening and when?

Let me address the dollar first. I have interviewed the foreign exchange guy from Macquarie Bank and he thought the dollar could see 93 US cents this year. It could happen but this is a minority view. Most analysts have the dollar over parity and some see it going as high as 110 US cents or even higher but I doubt this latter case will happen until China roars back.

I reckon our dollar falls when the Yanks raise interest rates and this will force up the US dollar. However, Ben Bernanke the central bank boss says he won’t be doing this until 2014 but I think he will change his mind as the US recovery is getting stronger. So if they cut rates next year instead, then our dollar would fall. Of course, our dollar would collapse if China fell into an economic hole and so we can’t hope for that.

On local interest rates, I know the RBA doesn’t want to cut rates but they don’t want to increase them. They will watch what happens to employment and if this decreases they will cut. I expect unemployment to go higher this year and that will bring a rate cut but this is only my best guess. The big worry is that the banks might not pass on any cut but the word is that funding pressures are starting to ease overseas and so some of a cut could be passed on. I don’t see great news for a business like yours in the short-term but I reckon 2012 will be better than 2011. However, I do think we will see a rate cut this year but I would love to see two.

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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, March 28, 2012

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