Only a month ago, one Australian dollar was buying you 93.5 US cents. On Friday, it fell to a ten month low of 80.73 US cents.
Let's firstly take a look at why the Aussie has surged in recent times. Julia Lee from Bell Direct says there's a very strong correlation with how the Australian dollar moves and our sharemarket.
Forgetting the recent weakness, we have seen the market pick up from its lows last year, and that's aided to confidence in the dollar. Chris Weston from IG Markets also points out, a dramatic surge in the price paid for Australian commodities in particular iron ore, has also lifted the value of our currency.
Then there's the interest rate differential. Australia has one of the highest interest rates in the world, thanks to our surging economy. That's attracting demand for our currency, because of the higher returns compared with other denominations around the world.
But things have changed dramatically in recent weeks, much of it related to global growth. The Euro-zone debt issues have raised concerns about how it will impact the world.
Add that to the recent worse-than-expected jobless claims numbers in the US, and we've now got a situation were experts are questioning just how strong global economic growth will be. Some are even asking, are we going to see a 'W' shaped global recession?
That's had an impact on our dollar, with investors pulling away from riskier asset classes into safe havens. Then there's China. It's government is already trying to slow the economy down, so that may place pressure on the demand for our resources, which is interlinked with our dollar. Although our government doesn't seem overly concerned with that scenario, given the newly proposed Resource Rent Tax assumes the resources super-cycle will continue.
Another part of this jig-saw are interest rates. A slowdown in the economy suggests rates may not rise as quickly as first expected, and even the Reserve Bank itself has indicated rates are pretty much now at long term averages.
So with the dollar where it is at the moment, who is to benefit? Chris Weston says exporters will be on the front foot as long as falls in the Aussie are faster the falls in commodity prices which seems to be happening. Companies which earn the bulk of their earnings offshore should also benefit.
Losers are importers which buy goods overseas for resale here, and some travellers.
The most common question I'm asked by my mates especially is “When do I convert my Aussie to Euro and US dollars?” The first thing I say is that I'm not a financial adviser. The second though, is that I'll ask some experts for their opinions.
In a recent story on SBS World News Australia, Julia Lee from Bell Direct told me, “If you're looking at going to the US, then now is probably a good time to change your currency into US dollars, because we will probably see the Australian dollar weaken further against the US currency.
However, if you're going to Europe you might want to hold off changing your currency to Euros or Pounds because this trend that we're seeing, the drop in the Euro, is probably a longer term trend and is something which will continue.”
Let's not forget though, currencies are hard to predict and one of the most irrational variables on financial markets.
On Friday, the Aussie recovered on speculation governments and central banks around the world will intervene.
For example, if the Aussie was plummeting, on tactic the RBA could employ, is to buy back a large parcel of our currency to limit supply to stop the slide in value. So it's all a case of watch this space, minute by minute.
