Analyzing the Australian Dollar, Up, Down, and Under

JulieW · Oct 22, 2011

Full article here:
http://www.marketoracle.co.uk/Article31058.html

With the Oz dollar a large element of our PM pricing it's another ball to juggle when considering plans I've found.

Copper, the metal with a PH-D in Economics lost as much as a third of its value from its record high peak, since August 7th. On Oct 3rd, JP-Morgan reported that the Global Manufacturing PMI had contracted worldwide for the first time in over two years last month as incoming orders for new work dried up. Softening prices for industrial commodities are starting to take some of the wind out of the sails of the Australian dollar, and are presenting some formidable headwinds that are weighing on the Aussie's exchange rate with the US-dollar.
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the RBA in the picture

The Aussie dollar also faces stiff resistance on the interest rate front, although a rate cut by the RBA wouldn't be taken as a big surprise by currency trades. The yield on Australia's 1-year T-bill rate has dropped sharply since May 1st, and is last seen at 4.02%, or nearly three-quarters of a percent below the RBA's overnight cash rate. Interbank futures on the ASX continue to imply a two-in-three chance of a 25-basis point rate cut to 4.50% before year's end. The RBA seemed to open the door for a small rate cut, as early as next month in what would mark an about-face for the famously hawkish bank.

The RBA said in releasing the minutes of its October policy meeting that future decisions would depend largely on the outlook for domestic prices and on developments in the shaky global economy. "Members believed that an improved inflation outlook, if confirmed by further data, would increase the scope for monetary policy to provide some support to demand, should that prove necessary," the RBA said. Much would depend on the inflation data for the third quarter, due on October 26th, falling back to within the RBA's 2-3% inflation target band. The RBA said it expects Australia's terms of trade to decline in the period ahead as global prices for commodity exports eased in response to softening demand in foreign economies.

Even a modest RBA cut in rates could give a sizable boost to incomes and provide a direct and rapid stimulus to the economy. There are A$1.2-trillion of home mortgages outstanding, and 95% of them are based upon variable rates, easily the highest share of any developed nation. This makes monetary policy a very powerful tool. For an average mortgage of A$300,000, a 25-basis points rate cut lowers the interest rate expense by A$600 a year.
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Last paragraph is food for thought - if one considers the RBA has this awareness and commitment. They certainly have the tools and it would fit in with the currency wars around the globe. It doesn't point toward cheaper purchase prices for metals in AUD terms anytime soon.

Two quarter point rate cuts by the RBA, expected by Aussie T-bill traders could help cap the rise of the Australian dollar, and might level the local playing field for Australian companies competing in the global markets. Western Australia is home to the top miners, and 10% of the country's population, yet is earning about 60% of the foreign income. The other 90% of Australians are earning 40% the foreign exchange. Manufacturing companies trying to win exports or fend off imports would get some relief from a slightly weaker Australian dollar.
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Analyzing the Australian Dollar, Up, Down, and Under

JulieW Well-Known Member Silver Stacker

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Analyzing the Australian Dollar, Up, Down, and Under

JulieW Well-Known Member Silver Stacker

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