By Peter Switzer

We get the latest inflation number today and it’s bound to be low. And a high dollar that you might love for holidaying purposes will be partly to blame. 

This might sound harsh but screw your overseas holiday, it’s the Australian economy, stupid. But if you do have to go overseas, I’d go to the UK. Better still, go to the Gold Coast or anywhere at home. (Sorry about the stupid line but it worked for Bill Clinton many years ago to get attention on the less-than-compelling subject of the economy.)

The Oz economy needs you! And it needs a lower dollar. As I implored you a couple of weeks ago, pray for a lower dollar.

Why is a lower dollar so desirable? Let’s list the reasons:

  • It keeps more local travellers at home with their spending money.
  • It attracts tourists and education students, which are two important export sectors nowadays. (I know it’s people coming in but we economists still call it exports, as we earn foreign currency, just like when we sell iron ore to China.)
  • It attracts foreign investment in infrastructure, shares, property, etc., because our assets become cheaper to overseas people with money.
  • The stock prices of companies that earn a lot of their profits overseas, such as Macquarie, BHP, CSL, etc., rise because when you convert earnings in US dollars, euro, pounds and yuan to Aussie dollars, you get more when the currency has gone lower or depreciated.
  • It stimulates economic growth by making exports more sellable and imports less buyable. And purchasing stuff overseas via the Internet is less attractive.

Our economy is starting to do well. If interest rates rise too fast too soon, then the Oz dollar would go higher. Last week, the Reserve Bank proved this when it made a mistake.

In its minutes, the RBA talked about getting back to a normal cash rate. It’s now 1.5% and the minutes indicated 3.5% would be the new normal.

This got the crazies in the money markets tipping interest rates would rise sooner rather than later and the dollar took off. The high I saw was 79.61 US cents, but one news headline had a foreign exchange expert telling us that 85 US cents was coming!

If it did, you’d have to go to the USA for your holiday to forget about the damage that would do to the Oz economy. I’m just joking.

A lower dollar now would ensure good economic growth over 2017 and 2018, create jobs, bolster the stock market and boost our stocks dependent super funds.

Oh yes, a high dollar is good for keeping inflation low but, right now, the RBA wants higher inflation. It wants to put together a normal economy, where inflation and wages are rising and unemployment is falling.

Sure, under those circumstances, interest rates will rise, but many of us will be better off via higher incomes so we’ll be able to afford it. And in a stronger economy, tax collections rise, which helps heal the Budget Deficit and Public Debt problems.

I know it has been economics you’ve been reading but surely this has given you good reason to pray for a lower dollar.

By the way, if you must go overseas, I’m betting the pound remains relatively weaker compared to the euro. And while the greenback is down now, better economic data and the Fed’s next rate rise later this year will take the US dollar up and our little Aussie bleeder down.

Personally, a lower Oz dollar hits my bottom line because we do holiday overseas every year but my fellow Australians and my stocks portfolio are more important!