The Australian dollar dropped to its lowest level in four years early this morning, following a surge in the US dollar overnight.
The Greenback soared after the Republican Party won the US midterm elections, owing to the conservative party’s pro-business policies, which drove the Aussie dollar down by nearly 2 cents. Adding to the drop was a new five-year low for the price of iron ore.
The drop to US85.65 cents is the sharpest fall since July 2010.
When the dollar hit a six month low in September, economists argued the fall would have little impact on Australian SMEs.
But what does the latest nosedive mean for small business?
It’s good news for the Australian economy, according to HSBC chief economist Paul Bloxham.
“The Australian dollar has been overvalued for some time and the fall should provide support for the ongoing rebalancing act the Australian economy is taking on, transitioning from mining sector to non-mining sector,” Bloxham told SmartCompany.
Bloxham says the lower dollar should support and encourage domestic spending in the lead up to Christmas, which will be particularly good news for small business retailers competing against imported goods.
He says small business exporters will also enjoy an increased competitive edge from the lower exchange rate.
He says the ongoing low interest rates, confirmed to be on hold for another month by the Reserve Bank of Australia yesterday, are having the desired effect.
“Clearly low interest rates are doing what they are supposed to be doing – lifting house prices and the construction sector, and in some cases supporting retail.”
Australian Bureau of Statistics figures released on Tuesday show Aussie shoppers spent $23.6 billion in September, a 1.2% rise from August.
“Low interest rates obviously give people more cash flow to be able to spend, not just on property but on durable household goods,” says Bloxham.
The Australian dollar was at US86 cents at the time of publication.