The Australian dollar has just tumbled. How should that make us feel?

The Australian dollar has just tumbled. How should that make us feel?

Well for starters, you should feel poorer. If you have any positive number Australian dollars, they are now worth less in international markets.

Source: RBA

That’s a 6.2 per cent fall against the USD and a 4.5 per cent fall against the trade-weighted index during the month. That makes imports more expensive

If electricity prices or taxes went up that much, we’d have hyperventilating shock-jocks all up in our front pages. But when the dollar moves that much, the silence is tangible.

That’s actually crazy. We spend far more of our money on imports than we do on electricity. We spend a similar amount on imports as on taxes.

share of wallet

If there is no locally made equivalent for what you like to buy (e.g. a laptop computer, quality coffee, petrol, most clothing) you’re just stuck paying more for what you love. But before your weeping becomes unconsolable read on: a lower dollar could actually do some good, eventually.

The benefit to the Australian economy works in two ways:

1. Australian exports start to look cheaper, and they sell more.

The upside will be extra apparent to you if the company you work for does exporting. Exporting is rarer than you might think. Just 2 per cent of Australian firms export (although obviously they tend to be bigger firms with more employees).

If you work for BHP Billiton, CSL or a school that teaches English to international students, your employer should find sales lifting without any extra effort, and you should find that the payrises start flowing a little more easily. Beauty, mate!

2. Consumers start buying Aussie products, not the imported equivalent.

If the product your company makes competes with foreign imports (including overseas travel), the fall in the dollar will help. Maybe your company is in food production or owns hotels on the Gold Coast. If so, plan for better times ahead. But don’t get overexcited.

The time it takes for a lower dollar to flow through to higher-priced imports can be long. While some things like petrol are traded frequently on world markets, most imports have their prices locked in well in advance.

So, on balance, how should you feel about the lower dollar? It depends.

  • If you’re a big fan of buying Australian made and you think foreigners should be too, happy days are ahead.
  • If you’re a connoisseur of foreign made products or a fan of international travel, then it’s more gloom and doom.
  • If you work in the Australian economy, then you can (gradually) start to whoop it up.
  • If you’re retired and you mainly consume the output of the Australian economy, then things look less rosy.

This is at once the blessing and the curse of writing about economics. It’s the Kurt Vonnegut effect: there’s no simple story – no absolute doom and gloom.

Every change in price that hurts someone helps someone else. Even if this seems like a windfall to you, the polite thing to do is re-arrange your face into a neutral position and carry on with your day.

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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