Falling Australian dollar will benefit domestic tourism and property

The 5 per cent drop in the dollar in a fortnight will boost property prices and improve job prospects.

It also vindicates the Reserve Bank's reluctance to cut rates despite sub par economic growth.

The falling dollar has corresponded with foreign money pulling out of the sharemarket.
The falling dollar has corresponded with foreign money pulling out of the sharemarket. 

The dollar is "just playing catch down to commodity prices," CommSec chief economist Craig James says.

An increase in vacancies suggests the worst of the job losses from the unwinding mining investment boom is over, while a survey by CBA, the biggest bank, of sales recorded through its eftpos terminals to be released on Monday shows consumer demand is picking up.

Falling commodity prices have resulted in a  drop in  the dollar.
Falling commodity prices have resulted in a drop in the dollar. 

Domestic tourism will be the biggest winner from the dollar's fall and the extra spending will flow to other industries.

In 18 months it has slumped 15 per cent against the US dollar and euro and 20 per cent against the pound.


As the economy picks up momentum the weaker dollar will lift import prices such as cars, electronics and books as well as the cost of overseas holidays.

The impact on petrol prices will be more muted because of the separate fall in oil prices  due tothe US ramping up production from fracking.

But it would boost the profits of about 30 per cent of listed stocks because of their foreign earnings.

Even so a slump to US80¢ expected by some economists would lift inflation and could bring forward rate rises by the Reserve Bank.

The dollar's post float long term average is around US78¢.

"It could come down in a whoosh," says Dr Shane Oliver, AMP Capital's head of investment strategy and chief economist.

"Speculators built long positions when there was talk of parity a few months ago. As they cut their positions that adds to the risk of a sharp fall," Oliver says.

The falling dollar has corresponded with foreign money pulling out of the sharemarket.

"The shedding of positions from international investors looks to have started," says IG Markets' strategist Evan Lucas.

Judging by the dollar's earlier fall a 10 per cent drop would add 0.75 per cent to 1 per cent to inflation.

Bank shares have already been hit in anticipation of rates rising in the US which would flow to wholesale capital markets where they borrow. Resources stocks and companies with large US dollar earnings are set to gain.

An unlikely beneficiary of a falling dollar is property.

"If it dropped below US85¢ and interest rates stayed on hold for a year, property prices would rise even faster" than the 8 per cent to 12 per cent (for Sydney) and 5 per cent to 9 per cent (Melbourne and Brisbane) which SQM Research managing director Louis Christopher is tipping over the next year.

Tourism areas such as the Gold Coast "are very sensitive to the dollar's value," he adds.

But even a small rise in rates to prevent inflation if the currency fell too far would stop property dead in its tracks.

"Total debt to GDP is very elevated and has picked up again," Christopher warns.

Although falling commodity prices especially for Australia's biggest export, iron ore, are hurting the dollar, the stronger US dollar is calling the short-term shots.

The US dollar is attracting money like a magnet.

It's riding an expanding economic recovery in the US and growing speculation rates will rise in the first half of the new year.

The longer term influences on the dollar are our interest rates – high by world standards and attractive to investors starved of decent return – and a slowing  Chinese economy.

These are pulling in different directions, so not all experts are convinced the dollar will fall.

A leading currency forecaster, Clifford Bennett of predicts it will return to parity around the end of the year.

"The dollar has been sold off because of the US dollar story and fears over China. Both are overplayed. Even when they rise next year US interest rates will still be below Australia's."