Sliding value of the USD...
By avalon on Jun 24, 2007
For many people coming to the USA means coming to a land of endless riches and wealth, and maybe 5 years ago I would have said the same, but right now, as an Australian, moving to the USA increasingly looks like a bad decision as the value of the US dollar continues to slide vs the Australian Dollar. How bad is this slide? Look at this graph from yahoo Year to date, USD/AUD.
At the start of the year, the US dollar bought 1.26 Australian dollars, but since then there's been a drop of around 6.4% to around 1.18. To an Australian working in the USA that has outstanding debts (such as a mortgage) in Australia, this effectively amounts to a real degradation in the value of my salary by the same amount - not exactly what you would call uplifting but at the same time, outside of the control of everyone in my immediate sphere. To put it more succintly, at the start of the year USD$1000 = AUD$1260 but today, USD$1000 = AUD$1180. At this end of the scale, it is only $80, but multiple that number by 10 or 20 or more and it becomes significant.
What is responsible for this change? Lots of things. For one it is intrinsicly tied to the strength of the Australian economy - exporting of coal to places like Japan and iron ore and other basic materials to China is resulting in a windfall to various Australian operations as the hunger of that country to meet its demands from growth. Consequently inflation is running close to the high watermark in Australia, prompting the Reserve Bank of Australia to keep nudging the interest rate up - Australia's interest rates are around 0.75% above the global average meaning that short term cash deposits in Australia are generating a higher return than elsewhere - the current cash rate there is 6.25%. Looking on the US Federal Reserve web site, it would appear that the official interest rate in the USA is about 1% lower - a difference of 16%. Yes, if I was an American looking to invest and make money, I'm sure I'd have a greedy eye or two on what is happening down under.
Update 2/7/2007: at 1USD=1.17AUD, the drop from 1.29 is now 7.14%. Depressing. They say what goes up must come down, but what was up and what was down? 18 hours later, USD$1 = AUD$1.16. Sigh