Really Going Places
Sydney Morning Herald
Saturday January 25, 2003
A stronger Australian dollar means only one thing to the travel-starved it's time for that overdue holiday, reports Brian Robins.
RECORD numbers of Australians are expected to travel overseas this year, taking advantage of the rebound in the Australian dollar, at a time when international tourists are increasingly scratching Australia off their ``must-visit" list.
The big gainers out of the revived interest will be Britain and the United States. They are already two of the top three destinations when we head overseas, but for many, they were unaffordable as the Australian dollar was marked down by international investors over the past few years.
This week, the Australian dollar was trading at US59 cents, up a handy 7 per cent since the start of the year, gaining ground as global investors sell US-dollar assets. These gains mean the Australian dollar has risen almost 25 per cent over the past 18 months from the all-time lows against the US dollar at US47.75 cents.
In the airline and travel industry, US60 cents is seen as the psychological barrier. Once the Australian dollar tops this level, this will encourage more travellers to look at booking that long-delayed holiday.
``We had expected the exchange rate to strengthen this year," says Stephen Pearse, Australian manager of United Airlines. ``If it tops US60 cents, that's a psychological barrier."
Bob Sparks, the head of Jetset Traveland, says: ``There is no doubt that with the stronger dollar the penny does drop that things are more affordable. ``If it hits US60 cents, that message will get through more quickly."
The Summer Olympics in 2000, the outbreak of foot-and-mouth disease in Britain and the weak Australian dollar all combined to keep Australians at home over the past few years. As a result, there has been pent-up demand, which is beginning to emerge, says Barry Mayo, the head of Harvey World Travel.
``We've seen this trend developing now for three months," Mayo says. The Australian dollar's gains ``will strengthen the trend".
The quick gains of the Australian dollar so far this year have encouraged pundits to forecast that it will move closer to US65 cents by year end, its long-term average to the US dollar.
The last time the US dollar was so strong against global currencies was in the late 1980s. But as its economy sought to unravel the financial scandals of the late 1980s, it fell from favour. That changed in the second half of the 1990s, when the booming US economy encouraged foreign investors to put their money into US dollar assets. That massive inflow of funds into the US is now being reversed.
For the Australian dollar, much of the buying has come from Japanese savers. Fed up with zero interest rates at home, they are chasing the higher interest rates available in Australia. Billions of dollars have flowed out of Japan into the Australian dollar in recent months, and that rising tide of money is showing few signs of abating.
A Salomon Smith Barney/Citibank economist, Annette Beacher, reckons the Australian dollar could reach US61 cents in the months ahead. But if the threatened US attack on Iraq is resolved quickly, this may see the greenback regain favour in currency markets as the long-delayed US economic recovery kicks in.
Unlike many forecasters, Citibank reckons the Australian dollar will not rise far above US60 cents, putting the peak at US61 cents in the coming months. And, as the US recovery gathers pace later this year, that could see the Australian dollar sold back to about US58 cents.
© 2003 Sydney Morning Herald