The lucky country. The 1964 book that provided the nickname for Australia was, in fact, a critique of the nation. In the past decade of Chinese growth, it has made sense to interpret the moniker unironically.
But that luck is changing. China’s growth is slowing. The demand for commodities that has sucked money into Australia is not as strong as it was. The halo effect on the rest of the economy is dimming. Interest rates have slipped and with them the Australian dollar.
Although attached to the 10th largest global economy, the Aussie is the fifth most actively traded currency, according to the Bank for International Settlements. It has been punching above its weight as a proxy for Chinese growth.
In many countries, a weaker currency might be good for exports. But aside from commodities, Australia has few listed exporters. A National Australia Bank survey released last week showed that two-way trade in goods and services accounted for two-fifths of GDP in 2013. This trade is dominated by imports.
And despite the years of favourable exchange rates, the country’s oligopolistic, cosseted industries did not take the opportunity to build their defences. Department stores such as Myer and David Jones indulged in fat margins, attracting new entrants. Meanwhile, Australia’s four big banks, led by expensive favourite Commonwealth Bank of Australia, rode the house price boom. They now face risks from the mortgage market, according to the central bank – which has hinted at cooling measures.
Yet despite the poor backdrop, the Aussie is the best-performing currency in the G10 this year against the US dollar. The benchmark Australian index, the S&P/ASX 200, has posted a flat total return this year in US dollar terms against up to 5 per cent for the MSCI World index.
Given the fickleness of fortune, the reaction seems mild. Australia is pushing its luck.
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