Australia’s resource boom is a two part process. The first is the massive inflow investment to build capacity and mines. The second is when the projects are completed and large-scale exports begin.
At the moment, we’re in between. The investment funds have flowed in to build the projects but they’re not yet operating. It’s a simplistic model that goes a long way toward explaining the dip in the Australian dollar and it’s a theme Commonwealth Bank of Australia chief economist Michael Blythe writes about in the Australian Financial Review.
Australia has posted centuries of current account deficits but he argues that surpluses are within sight in five years as investment slows and exports jump. In addition, he sees a faster reduction in government borrowing and more Australians investing abroad.
“You do need a lot of dots to connect for this to come through, but it’s a realistic possibility for the first time in 200 years,” Mr Blythe said.
Blythe says the Australian dollar could eventually soar on a surplus.
Abstracting from US dollar-specific influences, the combination of a AAA rating and a current account surplus would likely see the Australian dollar again trade well above parity to the US dollar.
