PureFX

How Has The Carbon Tax Affected The Australian Dollar?

Wed 11th July 2012

By Peter Lavelle

Since the introduction of Australia’s carbon tax a fortnight ago, it has had relatively little impact on the Australian dollar. This is for two reasons. The first is that, though the tax is controversial, it has yet to make a real impact on Australia’s economy. Hence, international investors, who help determine the value of the Australian dollar, are suspending judgement. The second reason the carbon tax has had little impact is that there are bigger fish to fry.

What else has affected the Australian dollar?

For instance, much more important to the value of the Australian dollar is the Eurozone debt crisis. In the past week, reports that Spain will receive a €30bn bailout, but that this might be delayed by a German constitutional court, first helped then hurt the dollar. This is because, as the situation in the Eurozone improves, global investors feel more confident and so buy more Australian dollars. Conversely if the situation worsens, the Australian dollar weakens as appetite vanishes.

Will the carbon tax affect the Australian dollar in the future?

Yes. This is because, the longer the carbon tax is in place, the easier it will be able to see its impact on Australia’s economy. So if business investment suddenly declines, or unemployment climbs, that could be attributed to the carbon tax, which might in turn cause the Australian dollar to fall. Alternatively, if there’s a boom in green investment, and Australians benefit from the social benefit programs reaped from the tax (as the government hopes), that could easily boost the dollar too. So it’s a matter of time will tell.

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