The Australian dollar recently hit its lowest point since 2002 as it plummeted to 55 cents. It's now lost more than 10% in 10 days and it's not just the AUD/USD exchange rate that's falling. The Australian dollar is down against most other currencies like the euro, pound, yen and kiwi dollar.
So is a low Australian dollar good or bad?
Like many things, it really depends on your situation. There are definitely winners and losers from a low Australian dollar.
Who benefits from a low Australian dollar
The big winners out of a low Australian dollar are some of the parts of the economy that have suffered the most during the COVID-19 outbreak. These include:
Tourism: A low Aussie dollar makes it cheaper for overseas tourist to visit Australia. It also makes it more expensive for Australians to travel overseas. This means they are more likely to take a vacation locally rather than jumping on a plane.
Education: Like tourism, a low AUD makes it more attractive to come into the country. International students deciding on where to study may choose Australia over the US or the UK because of the favourable exchange rate. On top of this, while foreign students are living in Australia, they can spend more money in the local economy if the exchange rate remains low.
Business: Australian companies that either export goods or sell services to customers overseas are can take advantage of a low Australian dollar. It means that they can price their goods and services much more competitively. It also means that when they receive revenue in foreign currencies like the US dollar, they receive more Australian dollars when it's converted back to the local currency.
Who loses from a low Australian dollar
The big losers out of a low Australian dollar in some ways are the opposite to the winners.
These include:
Overseas travellers: Have you ever planned an overseas trip only to see the Australian dollar fall just before you leave? It's frustrating because the lower the Aussie dollar goes, the more expensive it is to spend money overseas.
Retailers: Many retailers in Australia rely on goods that are imported from overseas. With a lower Australian dollar, these goods cost more to import. While some retailers are able to pass on some of this cost to the customer, many can't, meaning they make less money.
Business: If your business needs to buy goods from overseas, employs foreign workers or has to pay for costs in foreign currency, then a low Aussie dollar is not great. It means that they same employee, goods or subscriptions will cost you more.
What does a low Australian dollar mean?
At the end of the day, the Australian dollar is a floating exchange rate. That means that it goes up and down depending on supply and demand.
A low Australian dollar means that goods and services we import become more expensive. It also means that goods and services we export become cheaper and therefore more competitive.
In both cases, it's a good thing for an economy that is struggling or recovering.
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