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The enigmatic Aussie dollar

I am confused about why the Australian dollar is falling when the experts said we were heading to one US dollar for one Aussie dollar. I am going overseas and wonder whether I should buy my US dollars now to avoid seeing our dollar fall some more. And could you explain why there are two values on the Aussie dollar on the news programs but one is much bigger than the other?

I hate predicting the Aussie dollar as it can jump around and even confound the experts. I know CBA thought the Aussie dollar would be in the 85 to 87 US cents region by the end of the year but the NAB guys were talking parity. That was a month ago and the whole Euro debt problem could be changing their views.

The dollar has fallen because the European issues have put doubts over the strength of the global economic recovery and this hurts expected demand for our commodities such as iron ore and coal. That then means the demand for the Aussie dollar falls and this takes down the exchange rate.

For example, the recent post-Euro debt worries have brought the oil price down from the high US$80-mark to under US$70. That hits our dollar as oil prices fall and so do other energy prices such as coal.

On what you should do? It’s a gamble. This should be your thinking. If I was going to spend $10,000 overseas and the currency drops 10 per cent, I have $1,000 less purchasing power. But if I draw my money out of the bank I might lose $350 in interest. However, what if the currency rises – you could lose twice. There are so many things that can go wrong and as I said, it’s a gamble.

On the two exchange rates, I suspect you mean that you saw or heard “one Aussie dollars buys 90 US cents” which makes perfect sense, but some news services look at the US dollar as well. For simple numbers, let’s imagine the Oz dollar is at 50 US cents. If you flip it for the US dollar, you would say one US dollar buys two Aussie dollars or 200 cents. That means if our dollar buys 90 US cents then the greenback buys 1.11 Aussie dollars. Hope that helps.

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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: Friday, May 21, 2010

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