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Welcome to the new normal

Since the GFC, Australia has been booming, aided by stimulus from the world’s rising economic super powers’ endless thirst for natural resources. According to analysts from Pacific Investment Management Company (PIMCO), Australia is joining the ranks of other countries in what they call the “New Normal”, a term used to describe slowing growth, governments regulating economies and cautious consumers.

PIMCO analysts Adam Bowe and Robert Mead said, “After avoiding the worst of the ravages of the global financial crisis with the aid of significant policy stimulus from China that helped boost demand for bulk commodity exports, Australia has so far escaped the clutches of the global New Normal”.

Outside the mining sector the construction, housing and retail sectors continue to struggle, and the analysts believe the new normal has “finally arrived down under”.

A double edged sword

The currency situation we are faced with is simply that as Australia gets weaker economic data, it falls; combine that with above expected U.S. economic data, it falls even further. Westpac (ASX: WBC) chief currency strategist Robert Rennie said the Australian dollar was at risk of falling as low as 93 US cents in the short term.

ANZ’s (ASX: ANZ) Richard Yetsenga said 96 US cents had been a key support level for the Aussie dollar but said, “The underlying trend in Australian dollar is down as capital reallocates away from Asia and the commodity currencies.”

ANZ said the Aussie dollar will drop to 92 cents against its US counterpart by December and 89 by June next year. Credit Suisse predicts a drop to a low of 85 cents by next May. It said it had been “too timid” in its most recent forecasts and expects it a drop to 92 US cents within three months.

HSBC said it will be the US dollar that will be more dominant in the relationship that pushes the local currency down.

Foolish takeaway

The local market will need to adjust forecasts for stocks that are importers and exporters alike. Companies that rely on US markets like CSL (ASX: CSL) and Cochlear (ASX: COH)will  directly benefit from any downwards change. BHP Billiton (ASX: BHP) has previously said that a 1 cent drop in local currency corresponds to $100 million in net profit. Not bad considering since it’s dropped over 7 cents recently.

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Of the companies mentioned in this article Motley Fool contributor Owen Raszkiewicz owns shares in Cochlear, ANZ and BHP Billiton.

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