The Reserve Bank of Australia (RBA) has a dilemma. It seems that regardless of actions it takes to lower the cash rate, the AUD continues to rise and as recently as last week reached a high of 82 cents against the USD. There is a consensus that the current real value of the AUD is closer to 75 cents and that it should be expected to fall below 70 cents.
By international standards the AUD remains overvalued despite actions by the RBA to cut the cash rate. The main cause of this has been the recent declining value of the USD which over the past two months has seen the US dollar index fall by 7% from a value of about 100.
During 2010 and 2011, Australia reported consistent trade surpluses due to high prices of commodities but since 2012 the trade balance has been in deficit due to a… Continue reading
On recent visit to the United States I was amazed by the different wage structure compared to Australia. Wages in the United States are less than half of the Australian wage when considering an equivalent job. The following table taken from “The Economist” of October 4 shows just how out of balance real wages have become in Australia compared to other major economies. Over the decade ending in 2012, the mean wages growth in Australia was 22% which significantly outpaced wages growth in all other countries noted in the table. Mean wages in the United States have only increased by about 7% while in Japan, Germany and Italy there was a wages declined over this same 10 year period.
Wages in Australia have risen to the point where it is increasingly difficult for us to compete on international markets and so many industries have been forced to move… Continue reading