Henry once got into
considerable trouble when he told a Prime Minister that “his” country’s currency
was like a company’s stock price – the best overall indicator of how the nation
was perceived in the marketplace. The floating Aussie
dollar started life at approximately 90% of a US dollar. After briefly
rising toward parity, the Aussie sank to become a 60-cent dollar. Treasurer
Keating urged swinging spending cuts, the ACTU copped a cut in real wages and
the Reserve Bank tapped the monetary brakes. US interest
rates were falling, widening the gap in favour of Australian interest

Like the economy,
the battling Aussie dollar then staged a solid recovery, back almost to the
benchmark 90 cent level. Using the corporate analogy, “Well done Prime
Minister, well done Treasurer” was the obvious point to make. Keating took his eye
off the economy as he struggled, successfully in the end, to oust his boss. The
Aussie dollar fell to a low of 64 US cents as interest rates fell in the wake of
“the recession we had to have”. A new peak of 80 cents occurred shortly after
the Howard government was installed to implement its new anti-inflationary pact
with the Reserve Bank.

New depths were
plumbed in early 2001, with the Aussie dollar reaching a low of 48.3 US cents on
3 April. With serious concern about US recession not generally shared in
Australia, US interest rates fell
sharply, and the Aussie dollar rose again almost to 80 cents. Currently the Aussie
dollar is hovering in the middle 70s, trying to decide if it will rise or fall
from here. Factors holding it up include confidence in the managerial ability
of the Howard government and the wonderful bonus of high and perhaps still
rising terms of trade. Rising US interest rates has produced some
countervailing downward pressure.

A strong currency is
a sign of a strong economy. The 2006 budget created the first tentative steps
in tax reform. If there are further steps in coming years, the Aussie dollar
might eventually achieve a return to approximate parity with the US
dollar. That would be an
event to celebrate.

Henry Thornton.