The Australian dollar has dropped 2.1 per cent overnight to US65.9c, adding a further layer of worry for distributors and retailers already swamped with inflationary pressure.
The ASX was also down 0.8 per cent at the opening of trading today.
The drastic drop is a result of the widening gap between US and Australian monetary policy.
Overnight, US Federal Reserve Chair Jerome Powell told Congress the central bank will hike interest rates more than expected, and at a more aggressive rate.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate rises.”
This is at odds with Australia’s central bank, who yesterday hinted it will soon ease off the rate hikes — albeit, after ten consecutive rises.
None of this is good news for CE distributors, retailers, or consumers who will see a rise in import prices and the widening dollar exchange impact local pricing for goods.
In a speech this morning to the AFR Business Summit, RBA boss Philip Lowe was blunt:
“At our board meeting yesterday, we discussed the lags in monetary policy, the effects of the large cumulative increase in interest rates since May and the difficulties that higher interest rates are causing for many households,” Mr Lowe said.
“We also discussed that, with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy.
“At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook.”
All this means that it’s not inflation, it will be the falling dollar that impacts Australian consumers the hardest over the next few months.
