ANALYSIS: Why everyone with a mortgage should be watching the Australian dollar
"If it falls 10 per cent, then all things being equal, imported prices rise 10 per cent, and they are about 20 per cent of the CPI, so spread over a year, it would add 2 per cent to prices," AMP Capital's Shane Oliver says.
And the higher the level of inflation, the more likely it is that the Reserve Bank will bring forward its first increase in the cash rate.They include the price of iron ore, coal and gas ; the level of Australian interest rates compared to other countries' rates; the perceived health of the Australian economy; the broad demand for other countries' currencies; and, broadly, the level of anxiety on global financial markets.
There's a realistic chance the dollar could slip below 70 US cents, but it could just as easily stabilise where it is.The good news is that the link between the changes in the dollar and changes in import prices hasn't been as strong in recent times. Westpac doesn't see that happening. The bank's economics team has the dollar trading at 71 US cents in March and then back down to 70 cents in June.
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