Australian Dollar
 

Well the Aussie dollar reached parity with the USD less than 2 years after being at 68% of it!

A combination of factors, including a weak USD and a strong AUD are contributing (it's not entirely one sided). It's been hovering around the even mark since. Anyone from either side wish to comment?

I reckon it is good for the US economy but terrible for US Citizens in Australia. I think that it will end up around 0.95 or so and won't go back to previous levels anytime soon....

Can certainly state the obvious; it's making it pretty darn tough for Aussie exporters, but real attractive to be buying online from the USA, or if you're thinking about a holiday / vacation there.

We went to Oz in June 2009 and the AUD was about 70 cents...when I booked a lot of stuff in Feb/March 09 it was about 65 cents! Glad we went when we did.

The Aussie economy is very robust thanks to the major components being raw materials and agriculture and the wisdom to align with Asia 2 decades ago. Just as important, Aussie public sector debt is a small percentage of GDP (I believe less than 10%) while ours is north of 65% and getting worse.

Our Federal Reserve has further eased rates (they are at a 53-year low) while Reserve Bank of Australia recently raised rates...all cogs in the wheel. If any of my comments about Oz financials are off, please correct them!

I think the USD will stay weak....we shipped boatloads of greenbacks to China in trade for flimsy goods. More greenbacks were printed to bail out banks who are sitting on the cash and not too eager to circulate it back into the economy. So our consumer-driven economy will stay stagnant until something thaws. (Aviation content- the 787 is getting cheaper for Qantas as the delays continue).

Agriculture when compared to resource exports is fairly small, infact Australia is a net food importer now. Total agricultural exports are about 1/10th of resource exports.

Re Australian public debt the government went into the GFC with zero debt (there were government bonds, but these were largely to assist financial markets in pricing assets), debt is expected to peak at about 7% of GDP through the cycle.

68% was an aberration ... one of the many during the recent financial meltdown.

AUD will be near parity until US inflation is imminent.

Depends on your definition of 'food.' The recent reports of Australia being a net food importer are extremely misleading, and you cannot apply that to 'Agriculture' because Australia is by far a net exporter of agricultural goods.

The report that was issued and widely publicized only considered grocery products. Australia is a net importer of grocery products but exports a huge amount of unprocessed food product (wheat, sugar, etc) that was not included in those numbers.

It was actually 62%, which is a spike, but was in the 6X% range for many months. It stayed in the 7X% range for two years, ramping up above that for about a year before 2009.

So I don't know how you qualify an aberation, but the current state of parity is more unusual than the long-standing mid 70% range.

AUD exchange rate is actually surprisingly predictable over the past 40 years, just look back at the historical rates. Quite obvious in retrospect :) The current outlook is to get to go up another 10% in the next 6 months, so pricing will only get worse for tourists. The tourism sector is starting to hurt, but Sydney hotels are at 90%+ occupancy despite very high rates, so it will take some time before tourism costs will drop.

And that's always been Australia's problem. We sell you the wool and buy back jumpers, we sell you the iron and buy back steel, we sell you the ingredients and buy back the food. It's no wonder we usually have such an abysmal terms of trade.

Having more resources and wealth than consumption and manufacturing capacity isn't a problem but rather a blessing. Now policy of how those resources are allocated and who benefits from them is another matter, but that is a societal division of wealth issue. Australia doesn't need to grow the pie -- it is huge already -- but does need to watch which little piggies are taking multiple slices.

One of the most efficient steel mills in the world happens to be in QLD, and now is losing money due to the change in exchange rates (most costs are in AUD and most revenue is in USD). Still a great plant, but now uneconomic. Adding value to iron ore and coal can be tricky. Of course this is when the quality of management becomes supremely important.

May I ask how you see it being so predictable? I see predictable activity that would make me have the opposite conclusion (that it will retract, not gain against the dollar).

However if I look at the current economic conditions I suspect it might gain on the dollar.

So that doesn't seem predictable to me. :confused:

I have bought and sold AUD the last three years and made some decent returns but now have cashed out, if you have indicators it would be interesting for me.

Nothing to do with citizenship. I know many Americans here who are very happy as they are being paid in AUD. And I also know Aussis who are very unhappy as they are working for a big American credit card company and get paid in USD and they are much worse off than 12 months ago.

A chronic CAD isn't a great thing to have, nor is the fact that we import vast amounts of capital for uneconomic purposes such as property speculation, and putting things on the credit card. If it wasn't for a once in a century mining boom we'd be in the same sinkhole as the rest of the world. Our export base is far too narrow.

You're right, I meant just visitors who use primarily US currency.

Forex trading in AUD and AUD bonds has been easy money for the last couple of decades......of course the indicators are interesting, but they are hardly free.

The Australian Dollar was floated in 1983 so the relevant period is 27 years of data.

But AUD bonds trading goes back over 40 years (and has been equally profitable). And affected by the same factors. Of course history is interesting only in terms of isolating the causative factors and then applying this analysis to the current and future situation. Leading indicators are like gold.

29 year high this week ... brutal for US travelers

No -- brutal is when it is worth 80% more; as the USD was in Australia not so many years ago. Now it is just more or less same pricing as US travel in NYC or Boston for example, hardly brutal. Now you know how Aussies felt coming to LA for the past decade :)

I don't buy that argument (which several people have made), simply because purchasing power parity is not 1:1 for USD/AUD. If you take the long run average fx rate then at the current level American tourists would be feeling the same sort of pinch that Australian tourits were back when the rate was below 50c. 3:1 on the AUDGBP rate stung too. $15 beers anyone?;)

Sure, US prices for touristy things like attending football games are far higher, about 1000% of the Australian price :) I'm sure that is what you meant by not being 1:1 (most sporting events in US will cost 3x to 10x the equivalent Australian price). And if you want to climb the Brooklyn bridge, that will cost a million :)

I prefer the Big Mac index. You can't climb bridges or go to sporting events if you haven't eaten.:)

http://www.oanda.com/currency/big-mac-index

Australia is an expensive place to travel to without the high exchange rate. At .8-.9 USD per AUD it was still expensive but not quite priced like an "exclusive" destination.

But with an exchange rate of 1.0+ combined with the "remote tax" of much of Australia it's getting pretty expensive ... to me atleast.

Big Mac index ...Australia about 20% more expensive for USD holders than NZ seems about right. No stinging trees in NZ either.

:)

Can't comment on NYC or Boston, but having just returned from Melbourne to LA, Melbourne is nowhere close to parity. My experience is about 30% higher than LA, and if you know where to go for the best values in both cities, probably 40% higher. Cheap drinks in LA are far, far cheaper than cheap drinks in MEL. At high end spots in both cities, the prices are closer but still cheaper in LA.

Australian prices are indeed 'brutal' for the average American. The well-to-do from NYC or LA won't likely mind, but I am certain that Australia is going to lose tourism over this consistent jump in exchange rate. Australia is a terrific destination and I do believe it was a bargain for many years. At 85-90 cents it was still a place that could easily be justified to the average US visitor. But at 103 cents, there are just so many destinations that offer greater value at the moment.

A steep fall in the AUD can be anticipated anytime soon. My wife and I are travelling out of Australia over the next two months. It seems every time we go away there is a flight from the Aussie.

It couldn't be our spending that causes it, could it? :(

I'm not so sure the 'big mac' index is relevent to Oz other than indicating how relatively expensive Fast Food is there - relevant to other goods.

The mark up rather large.

A bit like the cost of Books really ...

... that i,s Australians are 'conditioned' to paying over the odds for books and fast foods.

Australians are willing to pay more for most things, usually because they don't know any better. Our grocery market is worth about $75 bln/year, in the US, which has a population 15x larger, the figure is $550bln/year.

Then there is cars, houses, internet....the list goes on.

US has very different subsidy and pricing system than most other countries -- even Canada and Mexico are dramatically different. US has very low taxes on alcohol, making bar drinks cheap by world standards, and has farmer subsidies that allow many foods to be sold at retail for below the cost of production. Also in Australia all taxes are included in the listed price in stores, while in US up to 5 separate taxes are added to the bill upon checkout (varies by location). Similarly for hotel rooms the Australian price includes all fees and taxes (by law), while in the US up to 30% extra is added to that "lower" hotel price. Sydney and lately Melbourne are priced comparably to NYC and Boston and Washington DC and Miami, admittedly more expensive than cities with a glut of hotel rooms and restaurants, such as LA. But smaller towns in Australia such as Daylesford are priced similarly to US equivalents (Carmel in that example), even with the current exchange rate. Do a fair comparison and see for yourself.

I did a fair comparison; I spent 3 weeks driving up the east coast and stopping at lots of small towns.

It is NOT comparable (at the current exchange rate) to small towns in the US. Not the ones I visit here anyway. 20% higher at a minimum for food, drink, hotel.

Everywhere is a bit different.. maybe you can share your data points? Where have you stayed recently vs where in the US? Maybe the west coast US is pricier than here in the midwest.

It is a very fair point that prices in the US don't include tax or tip. It makes Australian menus look much more expensive than they comparatively are, when the US menu prices are 25% lower than you'll probably spend.

Sure, midwest is much cheaper (so is Florida, the Carolinas, etc.). Most foreign tourists visit NYC and California (not opinion, but statistical result) and those happen to be more expensive parts of the US for hotel and restaurants and even entertainment. Theatre ticket in Australia is comparable to Broadway prices, not higher or lower, for example I saw Jersey Boys in Sydney and it was AUD 120. This year I've been to Daylesford (small spa town and artist colony near Melbourne) and Carmel (small spa town and artist colony comparable distance from San Francisco), and the prices were surprisingly similar. Of course Carmel has always been one of the more expensive small towns in the US, while Daylesford used to cost half as much. Globalization and supply and demand at work, along with advertising. While it is true that the Australian tourist industry cannot compete on price -- in reality it never could. Bali, Thailand, Phillipines etc. would always be far cheaper, and even NZ is significantly cheaper than Australia. Tourism in Australia has to compete on product quality. Sometimes it does a great job of that and is not price sensitive (witness the Sydney Bridge Climb), and sometimes it struggles.

One thing that US tourists have to realize is the "cheap pub food" is actually well made and cost-effective food in Australia, quite different from pubs in UK, Europe or US. Pubs (called "hotels") are the Aussie equivalent of Applebee's or TGIF, only with better food and independently owned.

Carmel is notoriously expensive... I don't see that as a logical comparison point. Yes, I've been there, it's nice, but it is very high end.

In the US I always feel bitten by the add-ons: virtually compulsory tips and gratuities, taxes on hotel rooms, sales tax on goods and so on. All of these things can add a lot to the written price for the unwary visitor.

I do think that Sydney is quite an expensive city, with the other large state capitals not far behind. The cost of eating out in Australia has (I think) risen a lot in real terms in the past ten years or so. Lots of consumer goods are expensive (for instance, things one buys at the chemist are a lot more than in many other similar countries, I find).

But as noted above, Australia's selling point as a tourist destination has never been that it is cheap, since there have always been places that are far cheaper.

So are the places in Australia that are being compared ... Sydney and Melbourne routinely place in lists of top 10 tourist destinations in the world, and depending on the list Australia has up to 50% of the world's iconic tourist destinations (things like Uluru and GBR). So comparing to Carmel is representative. There are cheap places in Australia too, lots of them, but US tourists don't go there. Instead they go to the expensive parts (making them more expensive ... certainly the rise in hotel room rates in Australia is entirely due to rising demand and highest occupancy rates in the world). US has similarly high priced tourist attractions (I was just looking at an inn in upstate NY that charges $20,000 per night if you rent all 3 of their rooms), or just look at any of the US State park grand lodges such as Yosemite ... $500 per person per day is typical if you can get a reservation. What Australia doesn't have are low-end cheap and sleazy motels and restaurants -- not entirely a bad thing, the worst place will still have reasonable quality, while some US motels are uninhabitable.

Want a bargain? Go to Queensland now, lots of half-price deals after the flood and cyclone disasters which have generated bad press and kept tourists away. But that is more like the anti-Carmel (Brisbane is nice enough, but it is no Sydney or Melbourne :) ).

Depends on your definition of "soon" -- I don't see it happening until world demand for Australia's resources collapses, and that's not going to happen until the Chinese and Indian economies simultaneously implode. (China, possibly; India, not for a while.) The US Fed's "quantitative easing" policy alone ensures continual downward pressure on the greenback for another few years at least.

Wrong; you specifically compared Carmel as a small town location. As I already stated, I was not comparing only 'big city' Australia, I have recently (within 18 months) stayed at nearly a dozen small and medium size towns in Australia, West and East coast, and they are NOT NOT NOT comparable in price to similar places in the US.

As for big cities, Australia is STILL significantly (~20%) more expensive, comparing my experience in Melbourne and Sydney to LA and Chicago.

You keep twisting the argument around so I don't see a need to continue the discussion, the above says all I need to say.

Australia is more expensive than most parts of the world. Certainly I would say that London is a cheaper city to live in than Sydney is these days. Frankly it's absurd, because Sydney is neither New York or London. It's a mid size city on the periphery of the world. Not that I'm complaining, I think it still has an incredibly high quality of life.

Australia is certainly more expensive to live in than the US. Anyone who doesn't think that is having a "let them eat cake moment".;)

I agree - having lived in NY and London, Sydney is a far more expensive place to live these days. As an example - basic food in Australia is far more expensive. E.g. a packet of chips (or crisps - not that I eat them often but I do find them horrendously expensive here) - London 30p, New York 50c, Sydney $2.00 - how did that happen ? Can of coke - London 75p, New York $1, Sydney $2 .... I could go on ....

Eating out on the other hand can be quite cheap if you know where to go and when !

Broke $1.10 USD per $1 AUD yesterday

As predicted in post #7 of this thread. Current outlook is to top out at 1.15 at most, so it has basically peaked and will drift down towards parity for the rest of 2011.

Despite the exchange rate, there are some bargains for travel to Oz; some of the Queensland resorts, for example. Shop around and it is still affordable and good value, just not in Sydney for NYE :)

Jim Rogers called $1.40 for the Aussie. If that happens I fear we won't have much of an economy left.

AUD back over $1.1 USD ... and the NZD has gone through the roof (vs USD) too at $.87 USD :eek: