Weaker Aussie dollar to raise cost of overseas trips, petrol runs

CommSec senior economist Ryan Felsman says the weaker Aussie dollar has raised the cost of importing petrol, at the same time as global oil prices have also been moving higher. The average national retail price of unleaded petrol was 196.5c a litre last week, he says.

“What it all means is that the weakness in the dollar at the moment is probably going to contribute to a lift in pump prices,” Felsman says.

If prices increase domestically, it could frustrate the Reserve Bank’s efforts to tame inflation. The central bank has hiked interest rates at 12 of its last 15 meetings.

But BetaShares chief economist David Bassanese says the drop in the Australian dollar is unlikely to rattle the Reserve Bank just yet.

”I think the weakness in the Australian dollar that we’re seeing today isn’t a reason for the RBA to get panicked and raise interest rates anytime soon,” he says. ”If the Australian dollar fell below US60¢, depending on the reasons, the RBA would be concerned that it might add another half a per cent to inflation.”

Mousina says the weakness of the Australian dollar is due to it being a “procyclical” currency. “When global growth sentiment is positive, and risk sentiment is positive, it performs well,” she says. “When those sentiments are sour, it doesn’t do as well.”

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Bassanese says the weakness of the Australian dollar was also because of the RBA signalling that it might be close to finished with raising interest rates. “Reduced expectations for further interest rate increases here reduces the attractiveness of the Australian dollar relative to other currencies as a source of interest rate returns for international investors,” he says.

The Chinese economy’s faltering recovery is also weighing the Australian dollar, says Bassanese. “If China’s economy slows, then demand for iron ore and coal will slow, putting downward pressure on commodity prices. That in turn affects the Aussie dollar because it’s correlated with commodity prices.”

The upside, Bassanese says, is that the risk of US recession, and therefore a global slowdown, is receding, which could bolster the Australian dollar.

Renewed concerns about China, however, mean Bassanese sees potential for a further fall in the Australian dollar. “My year-end forecast has been around 63 or 64 US cents, so I actually see it going a bit lower than where it is at the moment.”

But he says a turnaround this year is not impossible. “If China announces a big stimulus package and the growth outlook improves, then the Aussie dollar could easily rebound.”

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