The Aussie dollar is dropping against the US currency, but it’s not all bad news

The Aussie dollar is dropping against the US currency, but it’s not all bad news.

"It's been a case of all systems go for the US dollar," said Westpac's head of a foreign exchange strategy, Richard Franulovich.

"When the Aussie dollar falls against the US dollar, imports become significantly more expensive for importers and, by extension, businesses and consumers," Sal Milici from the Alliance told The Business.

The pound is down about 17 per cent," Mr Franulovich said.

Mr Franulovich said Australian businesses such as Mr O'Brien's are getting a double benefit.

"Australian exporters are enjoying relatively robust prices for their exports, they're earning US dollars for those exports, at the same time as the Aussie dollar has fallen.

"I lost my dad two and a half years ago in the peak of COVID and I wasn't able to go and, so, this is the earliest time I could get to go and pay my respects and offer the last prayers after his death," Mr Hashmi said.

Mr Hashmi regularly sends money to his mother in Pakistan and has noticed the exchange rate has been moving in his favour.

"I remember when I went [to Pakistan] last time, it was one Aussie dollar to 100 Pakistani rupees, now it's close to 140 or 150 [Pakistani rupees].

When the RBA announced its smaller-than-widely-expected interest rate hike yesterday, the Australian dollar immediately dropped against the US dollar.

"The general feeling was that the RBA would be hiking rates again, by 50 basis points, and that's what the market was bracing for," Mr Franulovich said.

"That leaves the Aussie dollar very vulnerable from an interest rate differential perspective," Mr Franulovich explained

"The bottom line is that, if the RBA is not going to be keeping pace with rate hikes compared to the likes of the Fed or other central banks, the interest rate differential will be moving against the currency in ways that are problematic for the Aussie [dollar]."

BetaShares chief economist David Bassanese said that, after the RBA meeting yesterday, the interest rate differential will keep upward pressure on imported inflation

Mr Franulovich thinks that, once the US Fed starts to slow its hiking cycle, the Australian dollar will be in a stronger position