You wouldn’t be an economics forecaster for quids.

Well, maybe you would, given the money they make, never even blinking about their frequent and sudden about-turns.

A couple of months back, when the Australian dollar burst through 69 US cents, there was no shortage of highly paid currency traders and economists predicting a quick flirtation with 70 US cents before heading onwards and upwards.

All that’s suddenly changed.

Now the currency is down in the low 60 US cents, and the calls are that it will continue to weaken.

To an extent, the recent moves are a reflection of just how strong the US dollar is at the moment.

But we are also sliding against other major currencies, like the pound and the euro, as a raft of negatives pile up against us.

A weak Chinese economy, American threats to impose punishing trade tariffs, a poor medium-to-longer-term outlook for our key exports and a sluggish economy are likely to keep the Australian dollar under pressure through 2025, threatening to send it into the 50 US cents.

If that does transpire, it will be the weakest we’ve seen the Aussie battler in more than 20 years, back to April 2003, to be precise.

That was when the dot-com boom had gone belly-up and Australia was seen as a relic from a bygone era, doing nothing more than digging up dirt and shipping it offshore.

We’re still doing that, but we got lucky — shortly afterwards, China took off.

The upside of heading down

The Australian dollar is one of the world’s most actively traded currencies — it’s also one of the most volatile.

We may not be among the world’s biggest economies, but we are a major trading nation, exporting vast amounts of agricultural produce, minerals and energy.

And then there’s our connection to China — because it dominates our trade to such a huge extent, it has made the Australian dollar a proxy for anyone wanting to speculate on the health of China’s economy.

Combine all those factors and you end up with a currency that endures some pretty wild swings.

In the early part of the millennium, the dollar plunged below 50 US cents.

By the time the resources boom was in full swing a decade later, it was trading at $US1.10.

That’s no bad thing, for the currency essentially acts as a shock absorber.

During periods of global crisis — such as the global financial crisis and the pandemic — it quickly takes a massive hit, helping insulate the domestic economy from whatever is happening elsewhere in the world.

That then eases pressure on the Reserve Bank of Australia (RBA) and the federal government to take emergency action, and delivers some breathing space.

But extended periods at the extremes can be damaging.

A weak currency fires up inflation because imports become more expensive.

An expensive currency can really damage domestic industry, as we discovered during the resources boom, when manufacturing was squeezed out and firms either shut down or moved offshore.

From pride to prejudice

As we all know, perhaps a little painfully, the Reserve Bank has a mandate to maintain price stability.

And for more than 30 years, like every other central bank around the world, it’s had a steely gaze on consumer prices and an iron-fisted attitude in controlling them via interest rates.

That wasn’t always the case.

In the post-war era, when the RBA was hived off from the Commonwealth Bank in 1959, price stability was interpreted as keeping the Australian dollar steady.

In those days, a steady currency was seen to be crucial to maintaining economic stability.

If it had to be devalued — which sometimes occurred in movements of around 10 per cent in one go — politicians would endure a public flogging for allowing the nation’s reputation to be trashed.

In many cases, the currency was kept artificially high just to maintain a sense of national pride.

How times have changed.

Ever since the turn of the century, almost every developed nation has battled to undercut the value of its own currency, to gain a trading advantage over its competitors.

That’s because a weak currency makes your exports cheaper and boosts your income from the goods and services you sell overseas.

And it protects your domestic businesses as consumers switch away from overpriced imported goods.

For more than 20 years, America routinely has declared China a currency cheat, been critical of Japan and admonished Europe over exchange rate manipulation — and all with a straight face, as it has engaged in one of the biggest money printing exercises in history, which has been designed, in part, to weaken the greenback.

At various times, we’ve been caught in the middle of those currency wars.

The Aussie dollar may be a heavily traded currency, but our economy is nowhere near the size of America, China, Japan or Europe, giving us little firepower to take on the others in the art of manipulation.

What moves the Aussie battler?

There are two main forces that move most currencies, ours included

One is the level of interest rates relative to other markets, and the other is the amount of capital flowing either into or out of the country through trade or direct investment.

As a stable democracy with a strong legal framework, Australia is considered a safe place to stick your cash.

So, when Australian interest rates look like rising, investors globally rush to take advantage and buy up Australian securities and interest-bearing investments.

To do that, they have to convert their home currencies into Australian dollars, thereby pushing the value higher.

Trade and investment flows also have a big impact, and that’s what we saw during the resources boom.

Huge amounts of cash flowed in, to finance the construction of new mines, while existing mines earned squillions as commodity prices soared.

Right now, unfortunately, all the tides are moving against us.

The US dollar is incredibly strong, with market interest rates still slightly higher than ours, even after the most recent cuts.

Commodity prices are also under pressure, including iron ore and energy, while the new critical minerals are suffering from oversupply.

Where to now for the Aussie dollar?

There’s an argument that our currency has been oversold — that might be legitimate in the short term, but looking at a longer timeframe, it’s likely we will remain under pressure.

Partly, it’s because our over-reliance on one major economy has come back to bite us.

China’s incredible growth was fuelled by a combination of government-directed investment in infrastructure and manufacturing exports, and by taking advantage of trade law loopholes that delivered it “developing nation” status.

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The most remarkable transformation in history has been accompanied by serious growing pains, which have collided with structural and demographic problems that have created headaches for Beijing.

A series of investment bubbles, burgeoning debt levels and an aging and shrinking population have coalesced into an economy spiralling into its fourth year of problems, as deflation kills investment and strangles consumption.

Add a potential trade war into the equation as the US isolates itself behind tariff walls, and the heightened prospect of global conflict on multiple fronts, and you have a formula for what promises to be almost unprecedented volatility.