I know it’s a rather mundane topic for such a sunny day, but some news caught my interest today.
Whilst all the financial news within Europe is one of continual doom and gloom, it is the complete opposite in Australia. This past week saw its strongest position on the financial markets since 1983.
At the time of the Sydney Olympics in 2000, a US dollar was buying two of its Australian equivalent. In the past year alone, it has gained 15% against the US dollar.
But there are opposite factors as well, Australia has comparatively high-interest rates, – 4.75% compared with 0% in America. The 10-year government bond yield is at 5.5%. There is low sovereign debt and a tightly regulated banking system.
Overall, the economy is strong, with unemployment just under 5%, the level that economists refer to as full employment. Australia has not experienced a recession since the early 1990s, and managed to avoid a downturn after the global financial crisis.
Above all, perhaps, it is the surge in commodity prices that is fuelling the resources-linked currency.
Yet with every golden cloud there is a silver lining.
Though it’s much cheaper to buy goods, in Australia tourism is taking something of a pounding. Many more Australians are taking advantage of the cheaper flights to other countries, the States especially, and are doing more shopping overseas.
With less and less shopping being done at home Australia is once more relying more and more on tourism.
At both the luxury and backpacker ends of the market, operators are being hit hard.
Some cruise companies are reporting that business is 60% down, and that the massive discounts they are having to offer is hitting the bottom line.
The same is true of hostel owners, because backpackers are either tightening their belts or are being put off coming.
For the tourism industry, it is a double whammy, since so many Australians who might normally holiday at home are looking to travel abroad.
How long this will last is anyone’s guess, but it certainly will not put me off visiting next year. By then I just hope that Sterling is as strong in the market as its Antipodean cousin!
