Australia dollar slump

The Australian dollar has slumped against the US dollar over the past three years.  This means that it is a lot more expensive for an Australian earning Australian dollars to live in the US.

 But what about Asia? Is it the same story for Australians moving to Asia?  Has the cost of living in Asia, in Australian dollar terms, popped higher?

The short answer is that the impact of the weaker Australian dollar has caused a significant loss in purchasing power for Australians in most Southeast Asian countries.  But the currency impact is nothing like it is on an Australian living in the US.  And because Southeast was at least 50-80 per cent cheaper before the Australian dollar slid lower, it is still much, much cheaper living in Southeast Asia than in Australia.

 An anecdote always helps.  Jim and Ellen of Planet Boomer and a few friends, seven people in all, went to dinner earlier this month in Tanjung Bungah, a suburb of Penang.  It was a charming little restaurant and they sat on a deck overlooking the water.  It cost a total of A$73 for all seven.  That covered nine dishes including crispy chicken, deep fried prawns, fried rice … along with 7 quarts of beer.

Looking at the current cost of living in Bangkok, the most expensive part of Thailand, restaurant prices are still 70 per cent cheaper there than in Sydney, rent 62 per cent cheaper, groceries 30 per cent cheaper, taxis 90 per cent cheaper, a beer 60 per cent cheaper.  A three course meal in a mid priced restaurant for two people still costs less than $24 all up.

And this is so, even though the Australian dollar has fallen between 10-20 per cent against most Southeast Asian currencies over the past two years.  This means that for Australians who have all their assets and income in Australian dollars, life has become up to 20 per cent more expensive in Asia.

The great exception is Indonesia.  There has been virtually no change in the exchange rate between Australia and Indonesia.  So life in Bali for an Australian, or life anywhere else in Indonesia, has not been inflated by a currency move.

The Malaysian currency, the ringgit, has risen the least of those Southeast Asian currencies we focus on.  It is up just 10 per cent against the Aussie.

But the Australian dollar has fallen around 20 per cent over the past two years against the currencies of Thailand, Laos, Cambodia, Vietnam and the Philippines.

Ouch! This means for your Australian dollar you will get just 80 per cent of the spending power that it had 2 years ago.  But that 80 per cent is a heap more than you get in OZ.

Some Background for the Nerds

The reason for the lower impact on Australians in Asia than Australians in the US is because the Australian dollar has not fallen nearly as much against Southeast Asian currencies over the past two years, as it has fallen against the US dollar.

In other words, these Southeast Asian currencies, especially the Indonesian Rupiah and the Malaysian Ringgit, have been weak against the US dollar, just like the Australian dollar has. But most Asian currencies have not fallen as much against the US dollar as has the Australian dollar.

The Malaysian Ringgit and Indonesian Rupiah are under more pressure than their Asian brother currencies because both countries are significant commodity producers, just like Australia.  

Malaysia is a significant oil producer and the price of oil has more than halved over the past two years. Indonesia is a significant coal, oil, copper, gold and nickel ore producer.

This commodity price weakness is what has driven the Australian dollar lower as well.

The Malaysian ringgit has fallen almost 20 per cent against the US dollar over the past 2 years and the Indonesian rupiah has lost almost a third of its value over the same period.

The Australian dollar has fallen almost a third as well over that same two years (from US$1.05 to the Aussie to near $US0.78).

As such, the Indonesian currency is unchanged against the Australia dollar, while the Australian dollar is 11 per cent weaker against the Malaysian ringgit. 

The A$ has weakened however by about 18 per cent against the Thai Baht over the past 2 years. This is a significant move and is impacting Australians.

Laos (the Kip), Cambodia (the Riel) and Vietnam (the Dong) all manage the value of their currencies.  These countries have a ‘managed float’ regime.  Even so, the Australian dollar has weakened against these currencies – down around 20 per cent against each.

But be aware that in Cambodia most transactions are conducted actually in US dollars.  This means the full 30 per cent currency fall in the A$ against the US$ is felt by Australians there.   

US Dollar - The Aussie has fallen about 30 per cent over the past 2 years against the US dollar from $US1.05 to US$0.78

Thai Baht - The Australian dollar has fallen 18 per cent against the Thai Baht over the past 2 years, from THB32 to THB28.5 

Indonesian Rupiah - The Aussie and Indo Rupiah exchange rate is unchanged over the past two years at around IDR10,000 to A$1.

Malaysian Ringgit - The Australian dollar has fallen 11 per cent against Malaysian Ringgit over the past 2 years.  A$1 = MYR2.86