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Is the Australian dollar too strong?

Is the Australian dollar too strong?

With the Australian dollar pushing above US80 cents for the first time since May 2015, CommSec's iPad index shows what this means for consumers, retailers and investors.

The CommSec iPad/iPhone index looks at the theory that the same goods should be sold for the same price across the globe once exchange rates are taken into account.

Last year, the Aussie dollar was near US76 cents and the year before it was at US69 cents, so with the Aussie topping US80 cents this month, what does this mean for product prices.

CommSec’s research shows that Australia is the 17th cheapest country in the world (of 57 nations) in which to buy an Apple iPad Pro (released 5 June 2017) 10.5-inch tablet device in US dollar terms.

The cheapest places to purchase an iPad in US dollar terms are Hong Kong, the US or Japan, while buyers in Brazil pay the most, followed by South Africa.

Last year, Australia was the 20th cheapest and the year before that, Australia was the second cheapest country in which to by an iPad.

Aussie 'more expensive'

“This year, the Aussie dollar looks more expensive,” according to CommSec Chief Economist Craig James in the report.

James added that the Reserve Bank of Australia has expressed reservations about the strength of the Aussie dollar recently, with the RBA board saying: “The higher exchange rate is expected to contribute to the subdued price pressure in the economy. It is also weighing on the outlook for output and employment.”

On current pricing, Aussie tourists could save almost $190 by buying an iPad Pro 10.5-inch tablet in Hong Kong, the report says.

When the currency strengthens, it does pose challenges for Aussie retailers,” James explains. “If they don’t pass on the benefits to customers in the form of cheaper imported goods, Aussie consumers may go online and source the goods from abroad. Or Aussie tourists may purchase goods abroad in preference of buying goods locally.”

Purchasing power

While sales tax rates provide complications in undertaking comparisons across countries, and freight and shipping costs can also add to the final bill, the CommSec index shows that Latin American, northern and Eastern European countries still pay the most for their tech devices.

The Aussie dollar is up by around 6% on the US dollar over the past 12 months.

On current exchange rates, Australian consumers could find the latest iPad less expensive in a number of Asian countries, in the US and in Canada.

James explains that if you assume that the Aussie price for an iPad Pro should be the same as that paid by a resident of California in the US, “then the exchange rate should be closer to US72 cents”.

“It could be argued the Aussie dollar is too high against major currencies on current fundamentals,” James says.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As the information on this page has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Past performance is not an indication of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.