The Australian Dollar (AUD) ($A) has weakened by around 1.4% against the US Dollar (USD) since the US Federal Reserve decided to lift interest rates by another 0.25% this week.
Jerome Powell, Chairman of the USA’s Fed, signalled that it’s likely US interest rates will steadily climb towards 3% over the next couple of years.
Higher US interest rates mean that investors can earn a better return on their money by investing in the USA compared to Australia, which makes the US Dollar more attractive.
What the AUD means for exporters
A worsening or lower Australian Dollar means that exporters get more AUD for the products they sell overseas in US dollars (because the US dollar is worth more).
What the AUD means for importers and consumers
However, importers will have to pay more for overseas products that they sell locally. In addition, a consumer who wants to buy, say, Nike shoes direct from the US will have to front up more Aussie dollars.
A lower Australian dollar could also have an effect on companies that report their results in US dollars.
How low will the Aussie Dollar go?
Some experts believe that the Aussie Dollar could go as low as US $0.70 as US interest rates rise and the difference between the Fed and Reserve Bank of Australia’s interest rates widen.
As we reported in March, Westpac Banking Corp (ASX: WBC) chief economist Bill Evans revised downwards his forecast for the Australian dollar to 72 US cents before the end of 2018. Currently, the Aussie dollar fetches around 75 US cents, according to data from Yahoo! Finance.
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