The Reserve Bank of Australia (RBA) recently cut interest rates, citing concerns about a possible global economic slowdown. Those fears may now be growing, after a steep fall in the value of the US dollar, which could have real effects for Australian households. The US dollar the most widely used currency in the world has dropped to a three-year low. This has caused concern among economists, including veteran Australian economist Saul Eslake. “The reason for the decline in the US dollar is that financial markets are becoming increasingly apprehensive about a number of aspects of the US econo

The Reserve Bank of Australia (RBA) recently cut interest rates, citing concerns about a possible global economic slowdown. Those fears may now be growing, after a steep fall in the value of the US dollar, which could have real effects for Australian households. The US dollar the most widely used currency in the world has dropped to a three-year low. This has caused concern among economists, including veteran Australian economist Saul Eslake. “The reason for the decline in the US dollar is that financial markets are becoming increasingly apprehensive about a number of aspects of the US economy as a result of things that the Trump regime is doing,” Mr Eslake told the ABC. These concerns include aggressive new tariffs on foreign goods and a proposed spending bill that could sharply increase US government debt over the next decade. According to ABC, as a result, US long-term interest rates have risen. For example, the 30-year US government bond rate is now around 5%, its highest point since before the 2008 financial crisis. When bond yields rise, so do mortgage rates and that can hit both Americans and Australians. “In some quarters, there is, if not panic, then certainly alarm,” Mr Eslake said, referring to the sharp rise in borrowing costs. He warns that this could hurt millions of American homeowners. “That means that even though inflation is coming down, in the US, at least, until Trump's tariffs come into effect, bond yields and mortgage rates are going up.” Higher US bond yields could also affect Australians especially those with fixed-rate home loans. While most Australian mortgages follow the RBA’s cash rate, fixed mortgage rates are also influenced by US bond yields. “Although our mortgages tend to price off the Reserve Bank’s official cash rate, fixed rates for mortgages and for business loans, the longer out you go the more influenced they are by US government bond yields,” Mr Eslake explained. The falling US dollar is also driving the Australian dollar higher. That’s good news for Aussie tourists, but bad news for local investors with money in US stocks. “We know that a lot of Australian investors have been piling into US stocks,” said Danielle Ecuyer from financial news service FNArena. “Even though US stocks have performed well], over the same period the Australian dollar has actually gone up 10 per cent. So, in Australian dollar terms, you’re basically losing that 10 per cent on your performance.” There are also broader risks to the global economy. Mr Eslake says the US is borrowing more than it is growing, which can lead to serious long-term debt problems. “And history tells you in those circumstances, especially if governments continue to run big budget deficits that can actually lead to exponential growth in public debt,” he said. “At its most extreme example, that’s what happened to Greece 13 years ago.”

The falling US dollar sends ripples through global markets, prompting economic reassessment in Australia as policymakers and investors weigh potential impacts on trade, inflation, and interest rates.

While the US is not in the same position as Greece, Mr Eslake warns that it is “heading in that direction.” On a more positive note, official inflation data is expected soon. If inflation is low, the RBA may have room to offer more relief for borrowers with variable rate home loans in Australia.

A little more informed. A little more connected.