Australian exports in profitable position as dollar tracks against US currency

For Australian agriculture, it's a profitable position — around 72 US cents. But will it last? Economists give us their thoughts.

Hovering at around 72 US cents, the Australian dollar has been sitting pretty for the nation’s agricultural sector this year.

But a decision by the American central bank may end the dream run for Australian farmers later this month.

With US President Joe Biden naming domestic inflation as his “number one priority” in his State of the Union address today, attention will now turn to the US Federal Reserve and its likely raising of interest rates in coming weeks.

Western Union currency strategist Steven Dooley said US inflation was a lingering headache for Washington’s political and economic leaders and the interest rate lever was likely to be pulled soon.

“America’s inflation rate has been around 7.5 per cent compared to a more modest 3 per cent here in Australia,” he said.

“The US Federal Reserve at their last meeting discussed raising interest rates. March is likely to be the month that they do it and the Australian dollar will be hit as a result.”

Mr Dooley said Russia’s invasion of Ukraine last week will have an indirect influence on the Australian dollar but the decision by the US reserve was of greater impact to the nation’s currency relative to the greenback.

Australia’s agricultural leaders have pointed to the stability of the Australian dollar as a cause for optimism among primary producers.

In the early 2010s, the Australian dollar traded at parity or above parity against the greenback as the US economy struggled through a deep recession.

It hit Australian agriculture’s traditional trading advantage for years, which was regained by 2013/14 as the Australian currency began to fall back to the US 80 cent mark.

Monash University macroeconomist Mark Crosby said the Australian dollar’s fundamental value was roughly in line with its position relative to its American equivalent.

“Twelve months ago, the Australian dollar was buying 80 US cents and for the past few months its been around 72.5 US cents. It’s been remarkably stable,” he said.

“It appears the US Federal Reserve is likely to move interest rates in coming months and will probably lift the official rate several times over 2022 and into next year.

“That will certainly have an impact on the Australian dollar, but what the past year has shown is that it has staying power.”