Traditionally, yields on Australian government bonds have been higher than their US counterparts. In fact, the last time US bonds traded at a premium was nearly 20 years ago. That changed recently as a booming US economy and lacklustre Australian economy conspired to drive the differential below zero again. In the below video, Dr Philipp Hofflin gives his thoughts on who wins if the AUD falls.
- In the short term, higher rates in the US than Australia shouldn’t matter
- If the differential is large and sustained, it should put downward pressure on the Australian Dollar
- Translators – companies that produce profits overseas – are clear beneficiaries. This includes companies like QBE and Brambles
- For exporters the benefit is even greater, as costs stay fixed but revenues increase. This includes mining, energy, and even companies like Cochlear
- A lower Australian Dollar could induce some inflation in the economy, which could be beneficial for retailers.
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