The Australian dollar has dropped to its lowest level since the early stages of the pandemic.
At the time of publishing, one Aussie dollar is worth 61.62 US cents.
It’s bad news for anyone planning a trip to the U.S. for their next holiday, but is there cause for broader concern?
Let’s unpack what a changing Aussie dollar means, where it’s come from, and how it might affect you.
About the Australian dollar
On 30 September 2024, $AU1 bought 69.18 U.S. cents. Since then, the value of the dollar has dropped nearly eight cents.
The Australia Institute’s Chief Economistsaid recent headlines “suggesting that we should be panicking,” have created confusion.
“You think… do I have to go and buy canned goods and go through the whole COVID crisis all over again?” Jericho told TDA. However, he said the panic could be “a little bit overblown.”
Changes
There are several factors behind fluctuating.
Jericho said the value of the Australian dollar generally reflects the strength of the economy, but a lot of it is out of our control on a domestic scale.
“The reality is that while we’re a fairly large economy, compared to America and China, we’re quite small. And when they start sort of mucking about, we get caught up in the wash.”
The “mucking about” Jericho referred to involves a U.S-China trade war, which is expected to intensify under a Trump presidency.
Donald Trump’s inauguration will take place in Washington D.C. on 20 January, officially marking his return to the White House.
The President-elect has pledged to introduce taxes of up to 60% on Chinese imports when he takes office later this month.
“That could really wreak some havoc,” Jericho warned.
What are tariffs?
Put simply, they’re a type of import tax.
When foreign-made goods and services are brought into another country, they are subject to fees or duties known as tariffs.
Governments may use tariffs to protect local manufacturing.
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This is because these taxes make imported goods more expensive. So, rather than absorb the cost of import fees on foreign goods, consumers may be encouraged to purchase domestic goods.
Geopolitical tensions and trade partnerships can also influence the tariffs a government chooses to impose on an individual country.
Trump’s plan to impose harsher tariffs on China will make it more difficult for Chinese manufacturers to import goods into the U.S.
On top of the tariff uncertainty under the Trump administration, the Chinese economy has been struggling more broadly, due to factors including falling house prices and high youth unemployment.
This month, the Chinese yuan dropped to a 16-month low.
China
Uncertainty in the Chinese economy has led to a drop in demand for Australian exports to China, including iron ore — worth over $100 billion a year.
Jericho argues, in general, “if China’s doing well, Australia does well”.
Trump’s tariff promise could hurt China even more (and by Jericho’s metric, Australia), at a time when America’s economy is relatively stable.
“It’s all about China being weak, America kind of attacking China with tariffs and we [are] caught up [in it].”
How this impacts you
It’s more expensive to travel to the U.S. right now, and online shoppers will pay more to import goods from U.S. sites to Australia. However, petrol prices may have the biggest impact.
Petrol is imported to Australia from overseas, and how much it costs drivers is determined by global oil prices. Petrol prices typically increase when the dollar is weaker, according to Jericho.
“That of course means inflation generally goes up a bit… Not good news during a cost of living crisis when we’re already feeling the pinch,” he said.
It’s not all bad news, Jericho claims, with local exporters standing to gain from a weaker exchange rate.
It’s now cheaper for U.S. companies to buy goods from Australia, meaning importers can buy more from Aussie suppliers, “for basically the same price”.
“ So we get hurt by high imports, but we get helped by lower prices for our exports. It’s very much swings and roundabouts,” he said.
Unless you’re an importer/exporter, Jericho doesn’t see the weakened Aussie dollar as a huge cause for concern.
“It’s not really all that important, unless there is a massive plunge one way or the other,” like the dollar plunging five to 10 cents in a week, for example.
Jericho said indicators like unemployment rates, interest rates, the cost of living and petrol prices are probably more important factors for most Aussies to monitor.
