Ross Garnaut, noted economist, feels Australia’s dollar may need to fall by 40 percent to stay economically competitive.

Australia dollar

The former government advisor’s prescription would mean Australia would need a U.S. dollar exchange rate around the US 70¢ mark, or still lower, implying a 40 percent slump from the current level.

Former Prime Minister Bob Hawke’s economic advisor, Ross Garnaut, during his interaction on Channel Nine told Financial Review Sunday that such as fall would be necessary for Australia’s non-resource sectors of the economy to regain competitiveness.

Hugh Hendry, in the latest performance letter of Eclectica Fund, also feels Australia seems to be the most acutely affected by China’s contracting imports and this has hit Australia with a large of shorts in AUD.

Australia Dollar seen as a major currency:

Australia Dollar is the world’s best performing major currency of the past decade posting 47 percent against the U.S. Dollar. However last month the currency fell 7.7 percent, the biggest since a 9.8 percent fall posted in September 2011.

Last month’s fall was accentuated as the nation’s central bank cut interest rates to record lows to soothe exporters and retailers hammered by currency gains. The noted economist, Ross Garnaut, feels export industries in Australia unrelated to resources, such as services, tourism and manufacturing, will only recover if the currency weakens between 20 percent and 40 percent.

Recent events corroborate the noted economists view.

Last month, the Australia government indicated that the country’s resource-investment boom may be at its peak after A $150 billion ($144 billion) of projects were either scrapped or delayed. Further Ford Motor Company (NYSE:F) indicated last month that it would stop manufacturing cars in Australia.

Reserve Bank of Australia Governor Glenn Stevens cut benchmark borrowing costs by 2 percent during the past 19 months to 2.75 percent.

However the former economic advisor Ross Garnaut feels transitioning the Australian economy away from its reliance on mining and towards areas like services, manufacturing and tourism would require a big depreciation in the value of the dollar. He feels the recent fall in the nominal exchange rate against the US dollar was only a small start.

The noted economist also advocated income restraint from all levels in Australian society, starting with large executive salaries which had blown out by several hundred per cent since 2000.