The Aussie dollar is down: Why that’s not so bad

Indeed, the AUD’s broader stability is a source of comfort rather than concern for policymakers even though against the USD it is markedly weaker.

It remains unlikely that there will be any material impact on inflation from the moves of the Australian dollar, even though many commodities and imported items are priced in US dollars.

European exporters, for example, still convert their revenue to Euros. And against the Euro, the AUD is tracking strongly.

The price of a car made in Europe, for example, might actually be cheaper in Australia in the months ahead because of the relative strength of the AUD versus the Euro.

Looking ahead

It remains a challenge to judge how the AUD will trend in the remainder of 2022 and into 2023.

It is increasingly likely that the Australian economy will outperform many other countries which is often a magnet for global investment funds.

At the same time, the Federal budget next month is likely to confirm a genuine and substantial move to repair the budget, a fact that should support Australia’s AAA credit rating and with that investor support.

The interest rate differential between Australia and the world is likely to work against the AUD.

The RBA appears to be setting the scene for a moderation in the monetary tightening cycle, just when the likes of the US Federal Reserve, the Bank of England and even the European Central Bank are hiking in big steps.