The incredible sinking Australian dollar!

See the latest Australian dollar analysis here:

Macro Afternoon

Go you good thing, now firmly below it’s former three year low…

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The way I read the longer term chart, there’s no support before just above 80 cents!

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Though I’m not hopeful of that unless trouble strikes.

We’re also hitting new lows versus the pound:

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And euro:

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We’re holding up versus the yen today though still within a big downtrend.

Houses and Holes
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Comments

  1. This is bad.

    Long term a lower dollar is good but right now this will destroy many small businesses.

    The majority of small businesses are importers and their margins are being crushed every cent the dollar falls.

    Expect to see a lot of small businesses close or lay off employees as their cost structure becomes un-profitable.

    Many small mum and dad businesses don’t have the knowledge besides ebay to export their products and so won’t be able to capitalise on a lower dollar. It is a shame because small businesses employ 50% of the working population and many of them are losing money every time the dollar falls.

    • Yes, but short term pain for long term gain.

      You’ll soon see less off-shoring, potentially more manufacturing here (provided we have the required IR reforms) and less importing as a whole.

      Ofcourse, the short term hit is coming at a bad time.

    • Maybe the employees the small businesses lay-off will be clever enough to start their own small business locally producing the goods that are now too expensive to be purchased from overseas by other small businesses…. nah, just sit there and whinge instead, that will fix the problem.

      • Why would I invest my money in a start up business after just being fired when I can leverage that money 10x into property and be an instant millionaire!

  2. I know this has to happen. I just want to point put that the falling dollar is a sign of capital leaving the country. All currency crisis start this way, when you are a heavily indebted country with a narrow export focus on commodities at a time when US Bond yields are rising and the greatest experiment in easy money in history is drawing to a close, the shit is about to hit the fan.

    • Quite right. New Zealand faces the same problem, and for those that believe that lower interest rates can accompany a lower currency that belief is about to be tested. At least we have been acclimatising the populace for nearly a year now that ‘higher rates are on the way’. Australia is still trying to reassure their people that lower ones are. Good luck with that….

    • It’s probably going to be a pretty volatile time from 2014 onwards, especially in Australia and China, but I wouldn’t stress about a currency crisis. While the private sector is in trouble debt wise, our central bank and fiscal situation are still fine.

      Our external liabilities are pretty comprehensively AUD denominated, so a currency devaluation doesn’t hurt us badly as far as I can see. Plus sovereign debt is very low, so lots of room to work with. I think this is more of a stabilising depreciation than any sort of currency crisis.

  3. Wooooo Hooooo

    this is what i have been holding out for, last 6 months have been horrible for everyone, really really horrible, and that includes the importers, so that theory is rubbish.

    • What theory AM?

      I have been looking are the projected unemployment rates being quoted, 6.25 %. In a more balanced economy these currency shocks we will experience may have such modest impact on UE, however we have the wonderful (very) brave new world of the ‘service economy’.

      The kind of response to even the hint of tougher times will have people mowing their own lawns, ironing their own shirts, washing their own dogs etc etc.

      The currency will be subject to multiple AND loop like shocks as the shock-waves bounce back in the form of consequences such as higher interest rates and asset deflation for example.

      If things continue to unfold as they are, I see mid teen unemployment or worse. That is free-fall with loop feed back on top.

      Its the bad situation we have discussed here for a number of years. I wonder to what extent it could have been mitigated by quality leadership?

      • I tend to agree with you. We have had 22 years of continuous growth and with around 22m people around half of which is in the labour force we have over 700,000 on disability pension( this number is almost unbelievable to me) and 800,000 on unemployment and really nothing has even happened yet.
        Once we start having genuine negative growth unemployment will moon shot to 10%. Then Shorten will become PM bring back centralised wage fixing and the tariff wall and we will join the list of emerging middle powers that never quite made the transition.
        Have a look at the long term unemployment chart once 6% is broken its a clear shot toward double digits.

      • The small business waffle above. Lots of companies are at a tipping point right now, i’ve been saying this for awhile but lately the bad debts have gone through the roof. Its because everyone has been giving importing a go now, everyone, even little mom and dad businesses, and now so many small and tiny companies have container loads of absolute crap laying around they cannot move. This is cheaper lower quality versions of stuff they would normally have bought from medium size Australian companies. So everyone suffers. The tiny importers need to go.

      • Alby M

        This is in no way a challenge to your post.

        What / where is your intel from? I am interested as I am doing a micro import thing. I based my plans on 0.67 USD to the AUD this is where I think the currency will settle after bouncing around much lower.

        Thanks TD

      • Very interesting Alby M.
        You are spot on about lots of mums n dads importing stuff/crap …..I even gave it a go myself back in 2009-10 and guess what if you can’t get the crap into Bunnings etc it is very difficult to off load it yourself…that is offload it quickly enough and get repeat orders to have a profitable business,….it is easy to go to a trade fair in China and Thailand and strike up a deal and ship it to Aus, the hard bit is the marketing, distributation costs in Australia, the other 50 competitors doing the same thing, the cost of warehousing,the cost of employing decent people that care about your business….unless you strike a niche and you got deep pockets, it’s a mugs game now….I don’t think that Kogan would get established as good if he was starting now…jeez I can buy a tv from Aldi for a few hundred bucks.
        I just bought a made in China outside umbrella and after doing the rounds I bought one from a family business, their service was superior to the big chain stores and they dropped another $180 off their price (it was already discounted)..guess what….they are bloody hurting…dead right Alby.
        And yet speculators are paying over 800k for old houses around Marylands SYdney..jeez one shooting a week there at least..
        Ladies and gentlemens…nothing is making sense here now…the dots are not connected….even look at a bigger event….this week the Chinese put a vehicle on the moon..without much fanfare….what have we in Aus done…yeah we are closing down Holden and the Kellogg’s factory on the NSW Central Coast..heaps of other business are on begging line for gov help…and in anothe post Stockland reckon we are in for a 3 year house boom

      • my intel is from my own manufacturing/importing business (and others i keep in contct with) in the hospitality sector that has been gradually hollowed out by my own customers! customers importing cheaper versions of what i make, but they are not making any money doing it, they have a tiny customer base compared to a medium size business and stock takes eons to turn over, and they undermine the manufactuer thats been supplying them for years and in turn making them profitable. its lose lose.
        micro importing…whats that?

      • Alby Micro as in very small. Careful because as has been mentioned its easy to buy but much more difficult to sell.

        That is really interesting because I said to a colleague yesterday that I wasn’t sure if the weaker AUD would be good or bad for my business plan/concept as there is a good chance of a shake out of many consumer categories including the one I am looking at.

        Thanks TD

      • Thanks Alby, sorry to hear that things are so hard, but I doubt it’ll change anytime soon.

        A couple of years ago I looked at importing but didnt follow through because the real problem is effective distribution. Effective distribution allows you to maximize the turns of capital cycle. In my mind business RISK increases exponentially with cycle time, meaning the ability to quickly dispose of imported product is the most important operational metric.

        I’d politely suggest things will only get worse as unemployment sky-rockets because many people will use their redundancy payments to get into the importing game. I was talking with someone last week that told me about all the bad debts he has seen, in the last year, from small mom&pop retailers folding.

      • Tony, i would seriously look at getting your product made here first, then you can do small runs, the manufacturer shares the risk AND reward with you.

        Bob, i hope not, they are a pain in the A$$. They are better off losing their money at the pokies, at least some of it goes back into the economy and not to Asia.

      • Alby I hope one day to produce some aspects of the product here when the CNY goes to its correct price which must be a lot higher than it is now.

        I am having a play around while I take a year off teaching and explore some of the competitive advantages I have available. I know its a punt but I’m having great fun and working hard to make it work.

        However, an astute investor would require a tariff to protect their infant business/industry from cheaper imports. And that is regardless of how favorable exchange rates are for local producers.

        I think Bob Menzies was the single biggest applicant of tariff as part of the GMH deal / investment.

        Thanks TD

  4. boomengineeringMEMBER

    These unemployment/employment figures are calculated on participation in the workforce of how many hours a fortnight?

    • Thats right, the petrol price market is likely to be quite buoyant and we may see a rally in prices with strong demand (especially after we have obligingly offshored a lot of refining capacity). Get in quick for that tank of petrol or you may miss out! There may never be a better time to buy than right now.

      • Yeah Gunna you just reminded me of a story.
        Back in the seventies my father decided to stockpile some petrol (oil crisis and strikes in UK)
        He got a 40 gallon drum and place it in an out of the way safe place.
        When he had some extra cash he would buy a few gallons extra and pour it into the 40g drum…after doing this for a few months he thought the had quite a stash…but when he went to retrieve some from the drum there was hardly any petrol in the drum, boy was he pissed off as he thought someone was pinching it….he hadn’t reckoned on the fact that his tiny amounts poured into the bigger drum were evaporating over time.
        Yeah..I know this was in the Irish part of the UK.

      • I’m just whipping up a proposal for a new TV show called ‘The tank’

        4 teams can (in the car of their choice) drive around Australia suburbia looking for the cheapest tank of petrol.

  5. Look out below. Thank goodness we are not all holding most of our wealth in a single AUD denominated asset class.

  6. For all the negative sentiment over AUD, i thought it held-up well yesterday. Despite the news the bears could not break it below 88 cts.

    So the question now remains, has AUD finished its downtrend for now and ready for a reaction…..

    I still think from a trading perspective that we should expect a run-up over 90 cts maybe a 61.8% retrace. COT should provide at least a little bit of insight in the weeks ahead.

  7. Japan has adopted an assertive Monetary Easing Policy, which drives the YEN downwards successfully. The immediate result shows that their Export and Tourism industries have picked up swiftly. Japan is now enjoying healthy export growth and has much more tourists visiting Japan.

    Australia can consider this as a viable option to improve our economy outlook.

    Another though is to engage a linked currency with USD, (e.g. A$1:US$0.80), which can give overseas investors good confidence in our economy stability.