You may be surprised to learn that Australia's currency has been in a "bearish" state for quite some time. The fact that it has actually been out of a bearish state for several years now, and has remained so over the past few months, is something that many Americans would not be surprised to hear. Although they would probably agree that Australia was hit hard by the Euro crisis, they are much more concerned that Australia's economy might be facing a difficult time.
A number of factors have made this country more vulnerable than many of its peers. One of these factors is the surge in commodity prices over the past two years. Another factor is the fact that the Australian dollar has risen significantly in the past several months.
And yet another factor has been the "bad news" which the Australian government has published on its Economic Statement of the Government. One factor which has come under considerable criticism is the fact that the Australian government has said that the country has an excess of money, and therefore, cannot maintain its economic growth. These particular words were all the more harsh given that Australia is a part of the OECD (Organization for Economic Cooperation and Development) and has a strong trading relationship with the rest of the world.
This is a country that has had to deal with many economic problems throughout the past decade. At one point, Australia was considered a "nice place to do business" due to its "unmatched" political stability, and its willingness to take on the obligations which were imposed upon it by the International Monetary Fund (IMF).
Today, Australia is at risk of another financial meltdown, this time, over the country's currency. Not because it has run out of money, but because it has increased in value, even more than the US dollar.
According to John Keane, the founder of a respected brokerage firm, ANZ, Australia could be suffering from what has been termed as a "McDonald's effect." In other words, a constant and pronounced depreciation of the currency. He says that a number of banks have indicated to him that they are concerned about their liquidity.
Another problem which has been on the minds of a large portion of the Australian population, is that if the exchange rate rises, how will they be able to purchase necessities when the "big boys" do not supply them with the necessary amount of money? But the answer to this is that they will only be able to purchase necessities with the Australian dollar.
If you look at the purchasing power of the Australian dollar in relation to the US dollar, you can see that Australia is not far behind the US in terms of purchasing power. According to the Reserve Bank of Australia, the exchange rate with the US is relatively close to its average for the past four years.
This means that despite the fact that Australia's economy is currently thriving, it may not be able to maintain its current level of activity for very long. After all, this is a small nation, which does not have the resources that America possesses.
Although there is no immediate threat to the Australian economy, the problem of a weakening currency is causing a stir among analysts, as more experts begin to worry about the future of the Australian economy. If Australia's monetary policy continues to follow the path that it has taken in the past few years, then Australia will be forced to struggle to maintain its economic growth for the foreseeable future. In order to avoid the "McDonald's effect," Australia should adopt a very aggressive stance with regards to raising interest rates. The Australian government should recognize that if they continue on this path, they will eventually lead to a sharp fall in the country's currency.