US dollar dive threatens Australian superannuation
Sabra Lane: When Australia's Reserve Bank cut official interest rates last week, it did so because it was partly worried about the risk of a severe downside scenario for global trade. Economists say that risk has just increased with a steep fall in the value of the US dollar that we might all feel the fallout. Business correspondent David Taylor explains.
David Taylor : The US dollar, the world's reserve currency, is flirting with a three-year low and its steep decline has veteran economist Saul Eslake worried.
Saul Eslake : The reason for the decline in the US dollar is that financial markets are becoming increasingly apprehensive about a number of aspects of the US economy as a result of things that the Trump regime is doing.
David Taylor : That apprehension is also showing up in higher long-term US interest rates, including the 30-year government bond rate, now roughly 5%.
Saul Eslake : I mean, apprehension is probably putting it at its mildest. In some quarters, there is, if not panic, then certainly alarm.
David Taylor : The distress relates to the connection between elevated long-term bond interest rates and the rising cost of millions of American mortgages.
Saul Eslake : And with the 30-year bond yield in the US now higher than at any time since before the global financial crisis, that means that mortgage rates are going up.
David Taylor : This, he says, could seriously harm the world's biggest economy. Australian mortgage borrowers on fixed interest rate loans, Saul Eslake says, are also in the firing line.
Saul Eslake : Fixed rates for mortgages and for business loans, the longer out you go, the more influenced they are by US government bond yields.
David Taylor : The falling US dollar, analysts say, is also pushing the Australian dollar higher. While that's good news for Australian travellers, FN Arena's Danielle Ecuyer says it's a risk for anyone holding US investments, and that includes Australians with superannuation.
Danielle Ecuyer : We know that a lot of Australian investors have been piling into US stocks. And this is just one of the aspects of, I think, probably where people go, well, that's great. US assets are going up. But the problem is the US dollar is going down. So in Australian currency times, you're not doing as well.
David Taylor : Saul Eslake sees the financial dangers for the US economy rising. That's because, he says, the cost of US government debt is higher than America's economic growth rate, which he points out can make servicing government debt incredibly challenging.
Saul Eslake : And at its most extreme example, that's what happened to Greece 13 years ago.
David Taylor : Official inflation data will be released later today, which, if low enough, could open the door to some additional relief for Australian mortgage borrowers on variable interest rates.
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