Aussie dollar's plunge sparks inflation fears

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The Australian dollar has hit a five-month low, sparking fears that interest rate cuts could be further off than anticipated.

The dollar plummeted to the equivalent worth of US64 cents this morning.

Economist Evan Lucas told Today the downward shift could be attributed to ongoing geopolitical tensions and turmoil in the oil market which had driven money to the US.

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“The reason it’s a problem for inflation is that as a nation, we tend to import a lot of the things we consume,” Lucas said.

“And if the dollar continues to go lower, to you and me, it appears more expensive because you need more Aussie dollars to buy that imported product, and that’s therefore increasing the price and therefore increasing inflation.”

And he said the dollar could slip still further.

Evans said Australia’s economic structure was also a factor.

“We are what we refer to as a ‘risk currency’,” he said.

“We are great when things are going really well, when commodities are really booming, etc, which, don’t get me wrong, they’re doing quite nicely.

“But when there are geopolitical tensions, when there’s risks around, you know, interest rates is another great example.

“Right now, while the dollar is so low, the Aussie dollar gets sold off along with players like, you know, New Zealand and Canada.

“And that’s where the money goes to, is to the US, and tends to also go to the Swiss.”

It has been speculated that the Reserve Bank of Australia, which has kept interest rates on hold for the past several months, will begin to impose cuts later this year.

Observers have pointed to softer household spending and some lifts in unemployment as triggers for bringing down inflation, which the steep incline in interest rates since 2022 was intended to fight.

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