Australian Dollar Forecast

Tuesday, January 13, 2009

Will Australia Avoid Recession?Weak Australian Dollar Will Lead to Upward Revisions for Corporate Earnings

The global economy is slowing but there is a decent chance that we could see Australian corporations report an improvement in earnings. Since the beginning of the year, the Australian dollar has fallen 25 percent against the US dollar, 35 percent against the Chinese Yuan and 50 percent against the Japanese Yen. These currency fluctuations are particularly important because Japan, China and the US are the largest export destinations for Australia.

Since a weaker currency reduces the costs for exports, leading Australian companies like Qantas, Billabong and Fosters have revised up their earnings on the expectation that a weak currency will boost foreign demand for their products. Stronger earnings will help to pull the country out of any recession and hopefully engineer the second half recovery that many economists are looking for.

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