Saturday, 9 January 2016

The Beauty of Currencies

This week's most lovely chart:

Taken from your average currency website, it shows the quick fall of the Australian Dollar (AUD) versus the Swedish Krona (SEK). Normally, the Australian dollar is quoted in terms of the US dollars for comparison (where it has also fallen by a similar proportion, to below 0,7$ per US dollar) but since my finances are more exposed to the Swedish currency, that's what concerns me.

Over the last few days, on news and fears of a slowdown in the Chinese Economy, the value of the Australian dollar fell some 5%. This since Australia is so dependent and sensitive to Chinese investments and prices of raw materials; meaning when doubts about China's future economic performance are hightened, the AUD falls - and when prices of Australia's largest exports (iron, coal, agricultural products) fall, so does the AUD. So, whenever something happens that affects these two factors (such as stock market volatility in China, slowdown in growth, tumbling world energy prices) the AUD falls like clockwork.

Since my backup-savings are held in SEK, the purchasing power of that money (what that money can get me in Australian stores) goes up when the dollar is falling. i.e, my money lasts longer, everything is cheaper, and I'm suddenly wealthier. *celebration time*. Obviously, like a good Keynesian I responded by increasing my consumption and reacting in accordance with the wealth effect.

More interestingly, the increase in my purchasing power arising from the fall in the value of the dollar was only slightly lower than what I earned from a full day at work today - and more than I'm getting paid after tax. Twice the effect; both my salary and the fall of the dollar worked in my favour this week! Or equivalently, changes in currency valuations matters more for my personal finance than a day at work. Yeah, that certainly makes work seem useful. Or not.

But hey, one day currency moves against me, like it did for me and fellow-Swedes studying in the U.K over the last few years. Over two years, everything became 30-35% more expensive as a result of the ludicrous monetary policy the Swedish Central Bank was pursuing.

Better enjoy it while it lasts.

No comments:

Post a Comment