Finance

Dollar tumbles below US90¢: Economy roundup

SmartCompany /

The Australian dollar has plummeted as anxiety grows about the impact the sub-prime crisis could have on the faltering US economy.

At 12.30pm the Australian dollar was trading at US88.48$, a long way south of US93¢, where it was as recently as Friday last week.

Much of the drop took place yesterday afternoon; it closed Australian trading yesterday at US89.67¢.

The dollar is dropping because currency traders tend to sell when they are trying to minimise their exposure to risk in the global economy. Counter-intuitively, given that it is the US economy that is shaky, this means the US-dollar appreciates in value against the Australian dollar.

Australian sharemarkets appear more focused on BHP Billiton and Rio Tinto than the US economy at the moment; however: at 12.30pm the S&P/ASX 200 was at 6497.9 points, up 0.7% on yesterday’s close.

The falling dollar will come as a relief to many businesses in Australia, especially those in the export sector. Today ANZ and Westpac Banks announced they were joining the NAB in lifting interest rates in accordance with the Reserve Bank’s 0.25% increase in the cash rate last week.

Sooner or later this will filter through to many business borrowers, although at a slower rate than the residential mortgage market. The RBA’s Quarterly Statement on Monetary Policy released yesterday revealed that 50% of businesses with loans less than $2 million experienced an increase in interest rates after the RBA lifted the cash rate in August.

In general, however, the shakes afflicting the US economy and global currency markets are not affecting the Australian economy. According to the NAB monthly business survey, business conditions improved strongly in October.

The survey, which asks businesses about a range of conditions including profitability, new orders and confidence for the future, lifted four points to a record high of 20 points in October.

Wage growth was the main black spot reported by the businesses surveyed, with wages now rising by an annual rate of 5.4%, up from 5.1% in the September monthly survey.

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