The Australian dollar is getting whipped and it could take for it to go as low as 40 cents to the US dollar before anything is done about it.
Economist and philosopher John Maynard Keynes is famous for saying that markets can stay irrational longer than you can stay solvent.In truth, the currency has been getting whipped for more than a decade. There have been ebbs and flows, some lasting years, but a pattern of lower highs has been intact since 2011.So, are the recent falls irrational? The answer lies in the relative prospects for our two great and powerful friends, the US and China.
Conversely, Australia has chosen to grow its population via immigration, rather than its industrial base. In effect, we get more people but less output growth per person as the economy gets less sophisticated.The great superpower transition is still ongoing. China still has many years of slowing growth and diminishing investment.
The Australian government’s commodity forecaster, the Office of the Chief Economist, is pulling no punches in this regard:
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