Australian Dollar Slump Seen to Boost Export Returns, Offset Terms of Trade

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By Reissa Su | July 8, 2013 2:57 PM EST

The Australian dollar decline is seen to improve manufacturing and bolster export returns as global prices for coal and iron ore continue to slump. 

Treasurer Chris Bowen says that despite the weakening Australian dollar, it still provides some level of support for buyers.  Bowen says this is a good thing for the Australian economy. 

Chris Bowen replaced Wayne Swan as the new Treasurer after Kevin Rudd's caucus vote win over Julia Gillard for the Australian Labor Party leadership. 

The Australian dollar has slumped to 13 per cent in the last three months.  It is the worst performing currency among 31 major currencies in the world.  The Aussie dollar fell to its lowest on July 3 since September 2010. 

The declining Aussie dollar is seen to offset the country's terms of trade despite China's slowing demand for commodities which may affect government revenue and Australian economic growth. 

Treasurer Bowen says there are always challenges to the growth of the Australian economy.  The terms of trade has fallen against the budget.  A countervailing impact will come from the Australian dollar.

The Australian dollar closed at 90.67 U.S. cents in New York last July 5, dropping from its January peak of $1.0599.  The falling currency moved as a response to the worsening outlook in China along with stimulus reduction proposed by the U.S. Federal Reserve

Signs of economic recovery

Despite the weakening Australian dollar, there are early signs that indicate recovery in other sectors of the economy.  Bowen cited the Australian Industry Group's Performance Manufacturing Index (PMI) for June which soared to its highest since last February 2012. Since the PMI is at the less than 50 gauge, the manufacturing industry is said to be contracting. 

The 5 per cent unemployment rate is still comparatively good according to Australia's Treasurer Chris Bowen.  Iron ore prices dropped 23 per cent from a high of 16 months in February due to China concerns.  Falling commodity prices will dampen nominal economic growth and government income. 

Bowen says he plans to maintain the spending plans and budget of his predecessor.  Bowen is a key supporter of now Prime Minister Kevin Rudd.   

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