Dollar's worth has its ups and downs Image digitally manipulated. LAST week could have been the week the Aussie dollar finally cracked. If so, it has huge and multiple implications. For starters, it would instantly eliminate any chance of further interest rate cuts. Indeed, it would start the countdown to interest rate hikes-- probably in the process snuffing out the first stirrings in the property market. The Reserve Bank would switch from saying the inflation outlook afforded "scope to ease policy further (translation: cut its official rate) should that be necessary to support demand" to something along the lines of: The board discussed the need to tighten policy (translation: hike) given the changed, deteriorating inflation outlook. Until the month it stopped "discussing" and acted. Certainly, what happened to the dollar last week - and the broader context of what's developing in global financial markets and the world economy - was more important and will have a bigger impact on your lives over the year ahead than the Budget. Even though many more trees were killed for the second. Obviously, what the Government did or did not do last Tuesday will impact on specific people, and impact on them differently. And the Budget is a crucial part of what sort of Australia will develop over time. But in the broad, life on Wednesday morning went on pretty much unchanged from how it had been on Tuesday afternoon. The dollar is a very different matter. The impacts of a dollar at, say, US95c are very definite as against a dollar at the $US1.05 of just a few weeks ago. This is even starker if we end up talking about a dollar at, say, US90c and threatening to go lower - contrasted with that dollar at $US1.05 and possibly going higher. There are two big features about moves in any currency, which are dramatically amplified in relation to the Aussie dollar. First you can't just "dial up" the desired number. Even if anyone could sensibly decide or agree on what that was. Would the Aussie be "best" at US95c? Or even the seemingly now fast-disappearing parity? When currencies start "to move" they tend to move both unpredictably and a long way, far overshooting any perceived rational value point. An Aussie dollar somewhere in the US90s would arguably be broadly in the "sweet spot." Not too high so as to squeeze manufacturers and exporters. Not too low so as to start pushing up import prices. Think big-screen TVs, computers and petrol. Trouble is, the dollar wouldn't likely stay in the US90s but head into the US80s. And that would start to cause real issues on the inflation front. Overall, inflation has stayed benignly low around 2-2.5 per cent. That's the reason the RBA cut the rate this month. But that overall figure is deceptive. It's a combination of almost zero inflation in what are called "tradables." That's the TVs, petrol and - thanks to the great war in the aisles - groceries, many of which now are imported. But also more worryingly, inflation of 4-5 per cent in the "non-tradables." That's utilities such as power, hospital, medical, financial services, and so on. So if a sharply lower dollar starts sending up the prices of the tradables to even just 3 per cent, when you combine that with 4-5 per cent inflation in the non-tradables, overall inflation would suddenly be more like 3-4 per cent. And the RBA's collective hand would move towards the rate lever. What was different about last week was that the currency changes signalled we were shifting from largely a US dollar story - the greenback going up against all currencies - to a combined US dollar/Aussie story. With the Aussie dollar falling against all currencies - even against the yen. The Aussie dollar is especially vulnerable to violent shifts because we have a huge existing foreign debt and are a big borrower each month. Plus both the currency and our markets are appealing targets for global speculators, made more of a target in recent years because of the stand-out dynamics of the China-led resources boom. Global investors were investing in Australia as a proxy for investing indirectly in China. Now they are switching to investing in the US where the shale oil and gas boom makes the US the stand-out economy in the developed world. It all adds up to being careful what you wish for. A dollar in the US90s would help a more balanced economy. It wouldn't by itself force the RBA to lift rates. But we are unlikely to get such a smooth and benignly sustained outcome. And "events" are going to keep happening out there in the big bad world beyond our shores.