The head of income and fixed interest at BT Investment Management, Vimal Gor, says that the Aussie dollar could fall as low as 40 US cents if we don’t reign in our “lavish lifestyle”.
He says that the “unique combination” of higher reliance on foreign capital and falling interest rates could mean our dollar is at “far more risk than most people think”.
“This reliance on outside capital to fund our lavish lifestyle, which is still stuck in 2006, puts us in a very different situation to pretty much every country that is currently running a zero or negative interest rate policy,” he told news.com.au.
“Economic growth in Australian dollars has been so weak for a number of years, even as real economic growth continues to show some pretty encouraging headline numbers … Yet we keep sending this growth overseas through high imports and paying out on past borrowings. This trend has deteriorated in the last year meaning we have to borrow from and sell assets to the rest of the world at a new, faster pace.”
During the mining boom, everyone wanted to buddy up to us, because we had a heap of cool shit. But now that the boom is over, no one cares about little old Australia anymore.
He says that after years of heavy borrowing “against the windfall of rising commodity prices, essentially acting as if they would last forever”, our banks’ balance sheets have shot up considerably from 2003 to 2008. A lot of this foreign money is going “straight into house prices”.
“The income windfall from rising commodity prices was spent as quickly as we earned it,” he says.
After correctly predicting last months RBA interest rate cut, Mr Gor says “a shock downside could easily see it move to 40c against the US Dollar if current trends continue, commodities fall to lows again and economic growth deteriorates.”
Currently, the AU dollar is buying around 74 US cents.