The recent weakening in the Australian dollar to a seven-month low against the US dollar won’t boost activity and inflation by as much as you may think as it has not been matched by a weakening in the broader dollar trade-weighted index. What’s more, if we are right in thinking that rising interest rates in the US are the main driver of global exchange rates this year, the Australian dollar trade-weighted index may stay stubbornly high relative to the bilateral US dollar/Australian dollar rate.
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