With Sterling-Australian Dollar rates breaching the 1.61 mark we may now welcome the best buying opportunity since October 2011. Rather than focus on potential reasons for this recent strength this report will look at what is next for the Aussie and why favouring a weaker currency could in fact be considered beneficial to them in the long-term.
On the one hand Australia has lots to gain from a weakening currency as it is heavily dependent upon the mining industry and the exports it provides. Every pip lost on the currency market makes inward investment seem more attractive and will increase the quantity demanded. Philip Lowe of the Reserve Bank of Australia (RBA) considers such movement to be favourable in the long-term due to the opportunities that could be created from the mining boom and the jobs it will create.
On the other side we have the gaps that favouring a weaker Aussie will create. Companies and industries involved in importing goods from overseas will face an increasingly expensive task of resourcing goods from overseas. This will be particularly evident with those working on projects, infrastructure and manufacturing that have a notoriously long supply chain. Also tourism and higher education will more than likely see a negative impact. Personally, I am strongly of the belief that no matter how important any one sector is it should not be done so at the sacrifice of others as it will create holes in the economy with structural unemployment as the only by-product.
The AUD is amongst a basket of the riskier currencies we trade here at Foreign Currency Direct PLC. Make sure you speak to a currency broker today and take advantage of current buying opportunities as they may well be short-lived.