What can our exchange rate predict?
A lot more than you think, according to two ANZ economists who think it can reveal our odds of winning the Ashes.
They’ve just released some research that shows “a relationship strong enough to suggest that Australia will find the 2013 series difficult to win” because of the relatively high Australian dollar.
They’ve tracked the results of every Ashes series since 1882, and find Australia is far more likely to do well when the Australian dollar is weak.
They have a few hypotheses as to why this could be.
“When the currency is high, the value of leisure time for Australians in the UK is greater than whilst at home,” they write.
“Cricketers may have more incentive to forego training and other duties in lieu of local experiences which, on a relative basis, cost much less than at home. Is it a coincidence that some of Australia’s best consecutive results were during the Great Depression when the exchange rate was weakest?
“For the English a weak pound sterling, as is the case now, will reflect a weak economy. The benefit of diverting national attention from economic woes is significant. Sporting success in difficult times creates national heroes.”
The correlation between a weak dollar and a good run at the cricket is 0.45, which is a good deal short of an absolute correlation which would be indicated by a 1. However, Hogan and Salter write, “the data do show a broad trend that appears consistent for the 131 years that the Ashes have been played”.
Based on the data, they expect England to win the series by between one to three tests.