AUD down and set to stay

IF you're planning an overseas holiday any time soon, this will come as bad news: the Australian dollar is down and staying down.

Aussie dollar

If you're planning an overseas holiday any time soon, this will come as bad news: the Australian dollar is down and staying down.

Two weeks ago, one dollar was buying around 103 US cents; today it's buying around 97 cents.

It has been battered by a perfect storm of lower interest rates, a fall in commodity prices, an uncertain outlook for the Australian and Chinese economies and signs of improvement in the US.

BK Asset Management managing director Kathy Lien said the dollar had lost more than five per cent of its value in the past month, most of that in the past fortnight.

"The Aussie dollar has now fallen against the US Dollar for nine consecutive trading days,'' she said.

LTG Goldrock director Andrew Barnett said the dollar had held above the 100 US cent mark for the past few years because of the relative strength of the Australian economy, compared to the US.
Australia's relatively high interest rates had also helped push the currency higher.

With interest rates in the US, Europe and Japan close to or at zero, investors have been borrowing in those countries and investing in Australia to take advantage of the considerably higher rates.

But that is changing - earlier this month the Reserve Bank of Australia cut its cash rate to 2.75 per cent, the lowest level on record.

Meanwhile, commodity prices have fallen, investment in the mining sector is about to peak and economic figures out of China have been disappointing.

At the same time, the US economy is looking healthier: unemployment is falling and there is a growing expectation the Federal Reserve will start to wind back its stimulus efforts.

Mr Barnett said the dollar could fall to a level not seen in about three years in the next few months.

"The Aussie dollar has been hit because the Australian economy over the next 18 months to two years won't perform at the level the market saw it previously performing at and the market is starting to buy into a genuine US economic recovery,'' Mr Barnett said.

"You put those two things together, it doesn't surprise me the Australian dollar is at 98.00 US cents and it won't surprise me if it is at 93 cents between now and the end of July.''