MENU

Will the Aussie dollar fall to 60 US cents?

Professor Ross Garnaut, prominent economist and former economic advisor to the Australian government, has said he won’t be surprised if the dollar drops to 70 or even 60 US cents.

Professor Garnaut said that after having mining as such a powerful driver in the Australian economy for the past two decades, Australia is ill-equipped to make the hard choices that it needs to in order to regain international competitiveness in the non-mining sectors. “It will take a while for all vestiges of the boom to pass into history but we’re already on that downward path”. The dollar will likely be affected from the instability and transition away from the sector, particularly as interest rates drop even further.

“Once it starts to fall a lot with a lag, we’ll start getting an increase in investment in non-resource export industries. I would be surprised if we are able to make the adjustments we need to make without a real depreciation of 20 to 40 per cent”, Garnaut said. This goes against what many currency experts are suggesting, but he said that, “I won’t be surprised if before this process is over we see exchange rates against the US dollar with a seven in front. I won’t be terribly surprised if there are times when we see it with a six in front”.

He went on to say that once the dollar has fallen, the real work of the RBA and government will kick in. The confidence of businesses needed to be picked up and incomes need to be kept down so that Australian businesses can gain competitiveness.

Since the turn of the century, we have seen executive income “blown out” by “many hundreds of per cent” and Professor Garnaut says it “has to come in”. This will give an example to the public that incomes are rising too fast and that it represents a real problem to our economy.

Foolish takeaway

If the Aussie dollar does fall that low, don’t be surprised if companies in tourism, manufacturing and services all get a boost to their underlying profit. Blue chips like Brambles (ASX: BXB), Cochlear (ASX: COH) and Resmed (ASX: RMD) are likely beneficiaries. I can’t see executives giving up their pay packets voluntarily, however some of Google’s executives recently declared another year where they will only get paid $1, so perhaps it could happen down under.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool contributor Owen Raszkiewicz owns shares in Cochlear.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!