Thoughts/predictions On Aus Dollar Exchange Rates

[Naam]

for what it's worth an opinion from Morgan Stanley dated july 31, 2008 (exerpt only):

EUR/USD, GBP/USD, NZD/USD and AUD/USD should drift lower

The dollar is likely

to be forming a multi-year bottom against the majors. The

inability of EUR/USD to hold above 1.60 two weeks ago, when

news on the US economy was terrible, is important, as it may

reflect the extreme misalignment of EUR/USD. With the

European economy slowing, the refi rate may very well be at its

cycle peak, but the FFR may be at its cycle trough. It looks much

more difficult for EUR/USD to rise significantly further without

triggering a policy response from either the ECB or the US

officials. At the same time, the economies of the UK, New

Zealand and, more recently, Australia have begun to struggle

almost as much as the US. A more dovish interest rate outlook

in these economies should lead to varying degrees of currency

weakness against the dollar. While the positive ToT shock

Australia has enjoyed may help cushion the AUD, and the BoE’s

hawkish stance may help limit the downside risks to cable, it is in

any case our opinion that the USD will outperform EUR, GBP,

NZD and AUD in the quarters ahead, to varying extents.

[Naam]

according to JPMorgan these are the most traded currencies listed according to volume (as of march 31, 2008):

1. USD

2. EUR

3. GBP

4. JPN

5. CHF

6. AUD

7. CAD

[Naam]

UBS on AUD - aug 1, 2008:

AUD: Fortunes turned once again on commodities

Aussie's mood shifted to the better after its June trade balance turned

to a surplus from higher coal exports. It endured heavy loss just a day

before on softer oil and gold prices. Exports are expected to remain

strong after mining firms secured as much as 97% of price hike in iron

ore to China.

[mijan24]

UBS on AUD - aug 1, 2008:

AUD: Fortunes turned once again on commodities

Aussie's mood shifted to the better after its June trade balance turned

to a surplus from higher coal exports. It endured heavy loss just a day

before on softer oil and gold prices. Exports are expected to remain

strong after mining firms secured as much as 97% of price hike in iron

ore to China.

Naam not being a financial or anything else wizard I read your post with interest and interpreted it together with the TT exchange rate for the Oz$ as being good steadying news pointing towards the up & up.

If my interpretation is wrong I am sure i will be informed.

[samran]

UBS on AUD - aug 1, 2008:

AUD: Fortunes turned once again on commodities

Aussie's mood shifted to the better after its June trade balance turned

to a surplus from higher coal exports. It endured heavy loss just a day

before on softer oil and gold prices. Exports are expected to remain

strong after mining firms secured as much as 97% of price hike in iron

ore to China.

Naam not being a financial or anything else wizard I read your post with interest and interpreted it together with the TT exchange rate for the Oz$ as being good steadying news pointing towards the up & up.

If my interpretation is wrong I am sure i will be informed.

true, but the australian economy is starting to soften. As such, inflationary fears/concerns begin to receede and the RBA will likely lower interest rates. Lower interst rates mean a lower interest rate differential between the Australian dollar and the US, and the AUD should soften...other things being equal...

[Naam]

UBS on AUD - aug 1, 2008:

AUD: Fortunes turned once again on commodities

Aussie's mood shifted to the better after its June trade balance turned

to a surplus from higher coal exports. It endured heavy loss just a day

before on softer oil and gold prices. Exports are expected to remain

strong after mining firms secured as much as 97% of price hike in iron

ore to China.

Naam not being a financial or anything else wizard I read your post with interest and interpreted it together with the TT exchange rate for the Oz$ as being good steadying news pointing towards the up & up.

If my interpretation is wrong I am sure i will be informed.

Samran answered your question Mijan.

quote: "true, but the australian economy is starting to soften. As such, inflationary fears/concerns begin to receede and the RBA will likely lower interest rates. Lower interst rates mean a lower interest rate differential between the Australian dollar and the US, and the AUD should soften...other things being equal..."

[Paul MBMG]

UBS on AUD - aug 1, 2008:

AUD: Fortunes turned once again on commodities

Aussie's mood shifted to the better after its June trade balance turned

to a surplus from higher coal exports. It endured heavy loss just a day

before on softer oil and gold prices. Exports are expected to remain

strong after mining firms secured as much as 97% of price hike in iron

ore to China.

Naam not being a financial or anything else wizard I read your post with interest and interpreted it together with the TT exchange rate for the Oz$ as being good steadying news pointing towards the up & up.

If my interpretation is wrong I am sure i will be informed.

Samran answered your question Mijan.

quote: "true, but the australian economy is starting to soften. As such, inflationary fears/concerns begin to receede and the RBA will likely lower interest rates. Lower interst rates mean a lower interest rate differential between the Australian dollar and the US, and the AUD should soften...other things being equal..."

AUD vs. U.S. Dollar

Near Term Trend: Neutral/ Negative

Friday’s Close: 92.50

Despite the market trading up to 97.70 in the last 2 weeks, we expected a test of support at 9368 (the 21- week Moving Average Line) which occurred on July 24. At that point we asked whether this was a temporary test of support or the beginning of a further legdown. The outcome was as we had feared - when we wrote "The uptrend remains intact but seems to be running out of steam - bad day for US economy and equities yesterday, if re-affirmed today, could however provide that impetus and be the spur for the next leg-up by AUD. Watch US data releases and markte responses very closely right now. Risk remains extremely high, any currency exposures should be viewed as high risk unless time-focused or with clear exit strategy/downside protection, such as stops etc."

US data was relatively positive as the US dollar strengthened amid supportive comments from US officials and some broadly positive US corporate earnings data. Long positions in the high-yielding Australian dollar suffered the largest loss as the currency retreated on the back of concerns over Australian banks’exposure to the US sub-prime market and lower commodity prices. The Australian currency fell 1.8% against the US dollar during the period towards the end of last week and that pushed AUD 120 points lower, finishing the trading week below 93.00

91.00 is a possibility for this current move.

However don't forget that any change in US data could lead to a reversal but the positive trend now appears to have broken. Watch the cross rate closely but also watch USD data closely.

All previous caveats and disclaimers apply.

[bendix]

I said it at the beginning of this thread. I'm definitely bearish on the AUD. The Australian economy is buoyed on commodities and all the signs suggest the commodities bubble is starting to deflate. Add in the only now emerging news of the extent to with the subprime crisis has affected the Australian banks (NAB's announcement last week, and who else to follow), and I think it's going to start drifting southwards. The RBA is expected to cut interest rates this week too.

the AUD bought 98 US cents a couple of weeks ago. Today it's below 93 cents. Thankfully, the baht is as weak as the AUD so they are cancelling each other out.

we'll see . .

[samran]

I said it at the beginning of this thread. I'm definitely bearish on the AUD. The Australian economy is buoyed on commodities and all the signs suggest the commodities bubble is starting to deflate. Add in the only now emerging news of the extent to with the subprime crisis has affected the Australian banks (NAB's announcement last week, and who else to follow), and I think it's going to start drifting southwards. The RBA is expected to cut interest rates this week too.

the AUD bought 98 US cents a couple of weeks ago. Today it's below 93 cents. Thankfully, the baht is as weak as the AUD so they are cancelling each other out.

we'll see . .

suspect australia will come out of this better than the US. Australia has had a year of warnings over the horizon from the states, which has made people more cautious. Annecdotally (of course) people have seen 'something' coming, so have paid down their debts on mortgages and credit cards as much as they can. This advanced warning, combined with relatively strong commodity prices, will see the landing be softer than elsewhere.

[Paul MBMG]

I said it at the beginning of this thread. I'm definitely bearish on the AUD. The Australian economy is buoyed on commodities and all the signs suggest the commodities bubble is starting to deflate. Add in the only now emerging news of the extent to with the subprime crisis has affected the Australian banks (NAB's announcement last week, and who else to follow), and I think it's going to start drifting southwards. The RBA is expected to cut interest rates this week too.

the AUD bought 98 US cents a couple of weeks ago. Today it's below 93 cents. Thankfully, the baht is as weak as the AUD so they are cancelling each other out.

we'll see . .

suspect australia will come out of this better than the US. Australia has had a year of warnings over the horizon from the states, which has made people more cautious. Annecdotally (of course) people have seen 'something' coming, so have paid down their debts on mortgages and credit cards as much as they can. This advanced warning, combined with relatively strong commodity prices, will see the landing be softer than elsewhere.

I wouldn't get too dogmatic either way; both currencies are hostages to events and their unfolding that no-one can predict - within a year or two you could see AUD:USD back at 2:1 or as strong as 1:2. This is uncharted territory and while I'd expect USD to strengthen over the medium to long term, it could totally implode. CAVEAT EMPTOR!!!!!!!!!!!!!!!!

[bendix]

Paul, for someone who presumably makes his advice giving advice, you have shown a remarkable propensity for sitting on the fence and saying nothing.

Jeez . . A trained monkey could say 'on the one hand this, on the one hand the other' and get paid for it. Where do I send my cv?

[Naam]

OZ central bank indicated yesterday that a rate cut based on the latest economic figures (which triggered the slide a few days ago) is in the offing. a part of AUD weakness is of course recent USD "strength".

[Naam]

'on the one hand this, on the one hand the other'

that's the reason why one always hears the demands "CHOP OFF BOTH HANDS OF ECONOMISTS AND ANALYSTS!"

[LaoPo]

Australian Dollar Falls to Four-Month Low as Commodities Slide

By Ron Harui and Candice Zachariahs

Aug. 7 (Bloomberg) -- The Australian dollar fell to the lowest in more than four months as price indexes for commodities the nation exports slid for a fifth day.

The currency declined for an eighth day before a government report that economists estimate will show jobs growth slowed, adding to signs a cooling economy will allow the Reserve Bank of Australia to reduce the benchmark interest rate. Governor Glenn Stevens said Aug. 5, after keeping borrowing costs on hold, that the ``scope to move toward a less restrictive stance of monetary policy'' was increasing as demand slowed.

``We have indications that the domestic economy is very weak and if on top of that you get indications that commodities are coming off in price it means you have both barrels shooting against the Australian dollar,'' said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York.

The local dollar traded at 91.03 U.S. cents as of 10:52 a.m. in Sydney from 91.55 cents late in Asia yesterday. It reached 90.65 cents, the weakest since April 2. The currency, known as the Aussie, climbed to 99.56 yen from 99.44.

Australia's dollar fell against 15 of the 16 most-traded currencies as the Reuters/Jeffries CRB Index of 19 commodities and the UBS Constant Maturity Index of 26 raw materials slid for a fifth day yesterday in New York.

Crude oil futures fell as low as $117.11 a barrel, 20 percent below the July 11 record of $147.27 in New York. Crude oil is Australia's fourth most-valuable raw material export. Commodity shipments contribute 17 percent to the nation's economy.

Job Growth

The currency weakened before a report that will say Australian employers hired 5,000 more workers in July, from 29,800 in the previous month, according to the median forecast of 24 economists surveyed by Bloomberg News. The statistics bureau will release the report at 11:30 a.m. in Sydney.

The Aussie has lost 0.9 percent since the RBA kept borrowing costs at a 12-year high of 7.25 percent on Aug. 5 and signaled rate cuts ahead.

The RBA will lower its benchmark rate by 0.83 percentage point over the next 12 months, according to a Credit Suisse Group index based on overnight swaps trading yesterday. The bank will definitely cut rates by 0.25 percentage point at its next meeting in September another Credit Suisse index showed. The RBA usually adjusts the target rate in 0.25 percentage point increments.

A benchmark rate of 7.25 percent in Australia, compared with 0.5 percent in Japan and 2 percent in the U.S., has made the Aussie a favorite with investors seeking higher-yielding assets.

``These trades worked so well for so many and the unwind is underway,'' said Adam Fazio, a currency strategist at CIBC World Markets Inc. in New York yesterday.

`Trend Support'

If the currency breaks below so-called support at its March low of 89.55 U.S. cents, the Australian dollar should weaken to as low as 85.50, Fazio said. Support is a level where buy orders may be clustered.

``Once we get down there we're testing long-term trend support and we really need to reassess whether more losses are in store,'' Fazio said.

Australian two-year government bonds snapped 11 days of gains, pushing the yield up 1 basis point to 6 percent. The price of the 5.25 percent security due August 2010 fell 0.015, or A$0.15 per A$1,000 face amount, to 98.605. A basis point is 0.01 percentage point.

---Bloomberg

LaoPo

[lannarebirth]

Happened on this today. Not conclusive in and of itself, but surely not a good trend:

[LaoPo]

Happened on this today. Not conclusive in and of itself, but surely not a good trend:

A bad trend indeed; it seems to me that many do not see yet the worsening situation in Australia...

I wrote an email to a friend in Australia on April 1 (almost 5 1/2 months ago) with the question if it was that bad indeed with the following article:

Australia.

Debtland

Reporter: Stephen Long

Broadcast: 31/03/2008 ABC TV. "Four Corners Programme."

Mortgages doled out to people on disability support pensions; loans to refugees with no English and no jobs that leave their families with next to nothing to live on; home loans so large they push borrowers below the poverty line…

This isn’t America’s sub-prime meltdown – it’s Australia’s debt debacle, the legacy of a credit binge that’s sent household debt through the roof and lending standards through the floor. Now the hangover is kicking in.

As many as 300,000 Australian households may be at risk of losing their homes. It mightn’t take much – another rate rise or two, a family illness or maybe just the car breaking down – to send people under. And for thousands more who are better off but feeling the pressure, this credit crisis is getting too close to home.

Dianne and her family are frontline casualties. Their home is being repossessed after constant refinancing landed them with two mortgages, one at 10 per cent and another – on terms they didn’t understand - at 20 per cent.

Four Corners meets them as they despairingly pack their belongings and give up the keys. Why did they take out loan after loan? "Because they keep giving them to us," is Dianne’s blunt reply.

It’s not just fringe lenders but also big banks which have pushed unaffordable credit. "We lent to whoever we could and as much money as they wanted," admits a former bank credit salesman.

Four Corners reveals how one major bank dished out unsustainable loans to numerous refugee families in one area. Some had no English and no job. In one such transaction a nine-year-old girl acted as interpreter. Elsewhere a disabled pensioner tells how her welfare cheque and small part time wage were enough for another bank to lend her $200,000. She is now in penury.

These cases exemplify how lending standards have slackened. Not long ago the rule of thumb was that mortgage payments should not exceed 30 per cent of gross household income. Now lenders leave borrowers teetering on the poverty line.

Mortgage stress is compounded by plastic debt. "The banks are just handing out money on credit cards like there’s no tomorrow… It’s quite terrifying to think that the average household… now has three months of their disposable income on a credit card balance," says one analyst.

All the rage now are store-branded cards offering in-house credit with zero to pay for several years – then, typically, punishing interest takes effect. More than 10,000 stores offer these cards and many shoppers have several of them - but behind nearly all of them is one global financial colossus.

Many Australians have gone deep into the red to fund a newfound love affair with the stock market. The amount they have borrowed to buy shares now equals the total they have racked up in credit card debt. And as Four Corners discovers, when the market plunges and a margin call comes, some people are just reaching for the plastic…

Reporter Stephen Long surveys the human wreckage of the household debt crunch and looks at the key players and tactics behind recent aggressive lending. Long’s disturbing report also throws doubt over the data that banks rely on to make crucial lending decisions

On top of the above it seems that Australia is 'receiving' some 300.000 new immigrants this year (but I didn't check that) which puts more pressure to the fragile situation.

All-in-all, it's not just the USA and Europe who are in increasing trouble.

LaoPo

Edited August 9, 2008 by LaoPo

[samran]

we will see lao pao. I'm not sure the assesment is so bad though. Commodity prices, while off their historical highs, are still strong. The RBA has been running a fairly responsible monetary possible, with interest rates at 7.5% or there abouts. In otherwords, it has room to move, unlike the US and the EU where interest rates are low already. Commodity prices have been high for this year, meaning that the federal budget will likely hit another near record surplus for 2008-09. This will give the government lots of options. If inflation is running high, instead of tax cuts it will inject the money into peoples super funds, providing liquidity there. Or if the economy looks fragile, the government will run a traditional Labor budget and do some good ole pump priming.

The AUD weekening is good too. It makes Australian exports cheaper - and given our reliance on exports, that is a good thing

Migrants are coming cause there is a massive skills shortage. Not all of the 300K you are talking about will be PR's...it will be roughly half of that as PR's, another 25K who are NZ citizens, and thus are not counted and another 100K odd who will be on bog standard 407 visa work permits, and will be given 30 days to leave the country if they lose their jobs. Migration - in the Australian context - has been found to be a net positive given that it is a skilled based system, rather than a family renunion system that you see in most other places.

[LaoPo]

we will see lao pao. I'm not sure the assesment is so bad though. Commodity prices, while off their historical highs, are still strong. The RBA has been running a fairly responsible monetary possible, with interest rates at 7.5% or there abouts. In otherwords, it has room to move, unlike the US and the EU where interest rates are low already. Commodity prices have been high for this year, meaning that the federal budget will likely hit another near record surplus for 2008-09. This will give the government lots of options. If inflation is running high, instead of tax cuts it will inject the money into peoples super funds, providing liquidity there. Or if the economy looks fragile, the government will run a traditional Labor budget and do some good ole pump priming.

The AUD weekening is good too. It makes Australian exports cheaper - and given our reliance on exports, that is a good thing

Migrants are coming cause there is a massive skills shortage. Not all of the 300K you are talking about will be PR's...it will be roughly half of that as PR's, another 25K who are NZ citizens, and thus are not counted and another 100K odd who will be on bog standard 407 visa work permits, and will be given 30 days to leave the country if they lose their jobs. Migration - in the Australian context - has been found to be a net positive given that it is a skilled based system, rather than a family renunion system that you see in most other places.

What's a PR in connection to migrants ?

Anyway, I read, earlier this year that Australians are such big consumers with their credit cards and that Oz had a total debt of AUD$ 42 Billion...that's 2,000 for every citizen.

Why is that so high and what about the mortgage problems for 100's of thousands ?

I am and always have been surprised by the enormous amount of users of Credit cards in the USA and other English speaking countries like Oz; In many EU countries we use systems that we pay with a bank card which withdraws the money immediately from your bank account, contrary to a CC (high interest rates).

I'm puzzled why such systems aren't in use; it would safe a lot of people a lot of money on a yearly basis.

You know better than me so I appreciate first hand comments

LaoPo

[LaoPo]

Australia's Deputy Prime Minister Pressures Banks to Cut Rates

By Laura Cochrane

Aug. 10 (Bloomberg) -- Australian Deputy Prime Minister Julia Gillard stepped up pressure on the nation's banks to pass on to borrowers any cut in official interest rates.

``If official interest rates were to fall, then we expect banks to pass that on to mortgage holders,'' Gillard told the ABC Television's Insiders program today.

Her comments echo those of Prime Minister Kevin Rudd, who said in Beijing on Aug. 8 that lenders ``have a responsibility'' to pass on central bank rate cuts to mortgage holders. Reserve Bank Governor Glenn Stevens signaled this week he may lower the overnight cash rate target from a 12-year high of 7.25 percent for the first time in seven years.

``It would be good for the banks to flow through any rate cuts,'' said Malcolm Watkins, Melbourne-based executive director Australian Finance Group Ltd., the nation's largest mortgage broker. ``But there is also the matter of the banks' higher costs of funds.

``We think the Reserve Bank needs to consider something in the line of a 50 basis point cut,'' Watkins said today in a telephone interview. ``Then we may expect 30 to 35 basis points of that to be passed through and 15 put back into the banks' margins.''

Australia's banks have faced government criticism for raising mortgage rates by more than the central bank increased its benchmark this year.

Loan Repayments

The nation's five largest banks have added an average 105 basis points to mortgage rates in 2008 as the global credit squeeze drove up funding costs. The central bank has added 50 basis points to its benchmark in that time. A basis point is 0.01 percentage point.

The increases have added A$250 ($224) to monthly payments on an average A$250,000 home loan, according to the Real Estate Institute. Households spent 38 percent of their incomes repaying mortgages in the March quarter, the most in the 22 years that the institute has measured affordability.

Stevens said on Aug. 5 there is increasing ``scope to move towards a less restrictive stance,'' stoking speculation he will cut borrowing costs as soon as next month.

Consumer confidence slumped in July to the lowest level in 16 years and home-loan approvals tumbled in June to a four-year low. House prices fell in the second quarter for the first time in almost three years. The economy, in its 17th year of expansion, grew at the slowest pace in almost two years in the first quarter.

Currency Slumps

The benchmark interest rate will be reduced by at least 25 basis points to 7 percent when the central bank's board meets on Sept. 2, according to 18 of 25 economists surveyed by Bloomberg News on Aug. 8.

Currency traders are also betting on a cut. The Australian dollar fell below 90 U.S. cents on Aug. 8 for the first time since March. The currency dropped to 88.87 U.S. cents, down from a 25-year high of 98.49 cents on July 16.

Expectations of a reduction in the central bank's benchmark have caused a drop in the rate banks charge each other for loans. The Australian three-month bank bill swap rate fell to 7.32 percent on Aug. 8 from 7.59 percent before Steven's Aug. 5 comments, and 7.83 percent three weeks ago.

That prompted Australia & New Zealand Banking Group Ltd., the nation's fourth-largest bank, to cut its fixed-interest-rate loans by between 11 and 50 basis points on Aug. 8.

Westpac Banking Corp.'s Chief Executive Officer Gail Kelly said the same day she would ``love to pass through the full'' amount of any central bank cuts to the majority of borrowers, who hold variable-rate mortages. Almost 90 percent of Australian borrowers have variable-rate loans, which have historically moved with the Reserve Bank's benchmark.

Regulation Threat

The government may increase regulations on banks if they are ``not competitive enough,'' according to Treasurer Wayne Swan. ``We'll keep an eagle eye on banks as we go through the year,'' he said Aug. 7.

Assistant Treasurer Chris Bowen also added to pressure on banks today over interest rates. ``Any future cuts are a matter for the Reserve Bank, but we certainly would expect reductions to be passed on,'' he told the Ten TV Network's Meet the Press.

Bowen was backed by Chris Lamont, senior executive director of the Housing Industry Association, who said in a telephone interview today: ``You have got record profits from the Australia banks. Yes there has been an increase in the wholesale costs of funds, but surely some of a rate cut should be absorbed against profit forecasts.''

The Reserve Bank has raised its rates four times since August last year to cool inflation that hit 4.5 percent in the second quarter. The bank targets annual price increases of between 2 percent and 3 percent.

``There is a tightening of credit and an increase in the costs, and that is, of course, affecting Australia,'' Reserve Bank of Australia board member Roger Corbett said today on Sky Business TV.

``There is a very strong mineral base in Australia; we have a very strong, broad-based economy, strong banks and a great basis for confidence.''

---Bloomberg

LaoPo

[samran]

Laopo - you need to be very careful with the bloomberg report. Homeownership in Australia is quite high, and what happens in the financial markets affects people marginally. The rental market in Australia is very tight - a reflection of the tight demand/supply situation.

And, the federal government is banging on the banks cause it is good politics - but there is little they can do about it. The banks need to make money, after all, no?

Anyway....

From crikey.com

Glenn Dyer writes:

The Reserve Bank now sees slowing domestic economic growth and the slowing world economy as risks of the same weighting to our current high inflation rate.

As a result, Australia remains on track for a cut in official interest rates next month after the Reserve Bank issued its third Monetary Policy Statement of the year, signalling that it is now more concerned about the slump in economic growth and its impact on a slowing local economy.

For the first time this year, the central bank says it is now committed to "sustainable economic growth" as well as the medium term inflation target of 2%-3%. That was after warning in the two previous quarterly statements of the need to either tighten monetary policy, or maintain it to make sure inflation slows.

Sustainable economic growth and price stability are the two main policy objectives of the RBA, but since February controlling soaring inflation has been its main one via two interest rates to add to the two in November and August 2007. On top of that we had 0.50% or more in rate rises from the bank, plus higher oil prices, all of which have combined to trigger a rapid slowdown in domestic demand.

It is quite a significant signal to the market and is a clear sign the RBA sees the rapidity of the slowdown in domestic economic activity is doing its work and will slow inflation from next year onwards. That's even though it admits inflation will rise in the September and December quarters, where it could hit the 5% level.

CPI inflation is expected to be higher in the short run, at around 5 per cent in the December quarter, reflecting the effects of higher petrol prices and the recent correction to estimates of financial services inflation, before declining thereafter. Excluding financial services and the effect of the child care tax rebate, underlying inflation would peak at 4¼ per cent while CPI inflation would peak at 4¾ per cent.

An estimate of 5% inflation from the RBA would normally see markets pricing in another rate rise and pushing the Aussie dollar higher towards parity with the US currency. But not now. The sharp drop in private credit in recent months -- as well as retail sales, consumer confidence, home loans and building approvals -- is why the bank is signalling madly that a rate cut is coming. And I'd be punting on a drop of 0.50% or one of 0.25% next month and another in October because of something else the RBA said. The bank seems to be more worried about what a further downturn in the world economy would do to Australia, more worried than the impact of the higher inflation rate.

Any further deterioration in the outlook for global growth would represent a significant downside risk to the domestic activity profile, particularly if it led to a marked slowing in growth in China and India.

This could lead to a significant deterioration in the outlook for the Australian economy and commodity markets, which could lead to further moderation in inflation over time as growth of domestic incomes and spending eased and oil prices fell.

In addition, the ongoing turmoil in capital markets could exacerbate the slowing in domestic growth by further reducing the availability of credit to households and businesses.

That's the first time the central bank has been so explicit on the dangers from the very volatile world economy and credit markets and it appears to be setting up a pre-emptive rate cut or two (as Mr Stevens has suggested in the past it has done with rate rises) to give the economy room to handle any worsening in the global economy.

While many economists had expected big changes to its forecasts, there was very little. Like the May statement, the bank still thinks inflation will fall to 2.75% by the end of 2010 with economic growth running around the same rate, as well as non-farm growth.

The bank repeated the new mantra contained in last week's statement from Governor Glenn Stevens that: "On the assumption that the subdued demand conditions are likely to continue, scope to move to a less restrictive monetary policy stance in the period ahead is increasing." It continued:

While inflation is likely to remain high in the short term, the Board judged at its August meeting that demand was slowing to an extent that could be expected to bring about a significant reduction in inflation over time. On this basis the Board decided that the existing monetary policy setting was appropriate for the time being

The evidence to date is that a significant moderation in demand is now occurring, and it is looking more likely that demand will remain subdued, and economic growth will be fairly slow, in the period ahead.

The Board will continue to monitor developments and make adjustments as required in order to promote sustainable growth consistent with the medium-term inflation target of 2–3 per cent.

That last statement was added to the main statement in the document for the first time this year and sends a signal that the bank now is juggling "sustainable economic growth" as well as inflation in some time. This is what it said at the end of the May statement:

The Board will continue to monitor developments, and will make adjustments to policy as needed to ensure that inflation returns over time to the medium-term target. months.

In fact it's a complete switch in policy from May's concentration solely on inflation.

[LaoPo]

Laopo - you need to be very careful with the bloomberg report. Homeownership in Australia is quite high, and what happens in the financial markets affects people marginally. The rental market in Australia is very tight - a reflection of the tight demand/supply situation.

And, the federal government is banging on the banks cause it is good politics - but there is little they can do about it. The banks need to make money, after all, no?

I'm not sure why you say so...?

With such high homeownership one can imagine it is very dificult for many to keep on paying their debts with such high mortgage interest rates in Oz.

And thus it would be a good thing for the RBA to lower the rates; hopefully the banks will follow and reward their clients with a lowered rate as well, especially for the existing mortgage rates.

Anyway:

"The Australian dollar, known as the Aussie, has lost 10.4 percent since reaching a 25-year high on July 16..."

http://www.bloomberg.com/apps/news?pid=206...&refer=home

LaoPo

[Naam]

even though USD appreciation is presently at a standstill AUD and NZD are still falling like stones.

[Tomissan]

I have to admit I never heard of this chap; will have a read tomorrow. He reminds me of the Bhagwan..

Are you telling me you follow his advises ?

LaoPo

Hi LaoPo, just curious, How does this chap remind you of the Bhagwan? Do you have some first-hand experience with "the Bhagwan"...cheers

[lannarebirth]

Those interested in $AUD may want to Google "Bearish Shooting Star Candlestick". That's what it looks like to me anyway:

And so it was...

[lannarebirth]

That carry trade unwind is mother%#@*. Been there, done that. My sympathies.

[harrry]

I cannot compete with any of you either in a wealth, financial knowledge or economic trends knowledge basis but hasn't the aud just returned to the traditional long term value it has had of about 75% of the USD with the rate being artificially high for the last few years. What does worry me is that it is still putting strong reliance on coal and is steadfastly refusing to embrace any Nuclear Power despite saying it is going to force reductions in emissions. It also concentrates on selling raw materials rather than local processing such as not using the North West shelf gas and salt to locally support a petrochemical industry. That is why I worry about the long term future although I think Australia is fairly stable now.

Edited October 6, 2008 by harrry

[lannarebirth]

I cannot compete with any of you either in a wealth, financial knowledge or economic trends knowledge basis but hasn't the aud just returned to the traditional long term value it has had of about 75% of the USD with the rate being artificially high for the last few years. What does worry me is that it is still putting strong reliance on coal and is steadfastly refusing to embrace any Nuclear Power despite saying it is going to force reductions in emissions. It also concentrates on selling raw materials rather than local processing such as not using the North West shelf gas and salt to locally support a petrochemical industry. That is why I worry about the long term future although I think Australia is fairly stable now.

I think the thing people need to take away from this experience is that markets are frought with risk. Leverage enhances that risk, and if you're leveraged enough there's no amount of "Insurance" (derivatives) that will mitigate that risk(instead it can compound it further). The use of derivatives was widely sold as a risk reducing mechanism, but the idea that risks might be reduced only caused distortions in the market. The removal of that same "protection" will likely cause distortions as well, and no one knows how long it will take before markets (anymarket) will betrading on its fundamentals (if they ever did). Good Luck

Edited October 6, 2008 by lannarebirth

[jcon]

That carry trade unwind is mother%#@*. Been there, done that. My sympathies.

Old thread, same questions.

Some people must have gotten burned badly, thinking that the AUD/USD would reach parity and beyond...

I wonder how many TV posters from OZ/NZ we've lost.

Anyway, I keep staring at this .5 USD for 1 NZD mark - and I'm itching to pull the trigger (from THB, as we all know it's basically USD at this point). I'm at the Thai limit for foreign currency already, but I'm thinking I'll do it in somebody else's account.

My question is... do you think we've passed the carry trade unwind? It was FAST AND CRUEL... but now we're where we are... and at 50 cents the NZD is just baiting me (which probably means it will go to 10 cents because anything I do seems to be opposite day)...

But, ok - are there carry trade figures out there? Have all the japanese housewives repatriated their monies? I know NZ still has room to cut rates, but I just wonder how much unwinding has already occurred....

Lanna, how bout a Tits n Ass (TA) of the NZD/THB? Just for fun....

[lannarebirth]

That carry trade unwind is mother%#@*. Been there, done that. My sympathies.

Old thread, same questions.

Some people must have gotten burned badly, thinking that the AUD/USD would reach parity and beyond...

I wonder how many TV posters from OZ/NZ we've lost.

Anyway, I keep staring at this .5 USD for 1 NZD mark - and I'm itching to pull the trigger (from THB, as we all know it's basically USD at this point). I'm at the Thai limit for foreign currency already, but I'm thinking I'll do it in somebody else's account.

My question is... do you think we've passed the carry trade unwind? It was FAST AND CRUEL... but now we're where we are... and at 50 cents the NZD is just baiting me (which probably means it will go to 10 cents because anything I do seems to be opposite day)...

But, ok - are there carry trade figures out there? Have all the japanese housewives repatriated their monies? I know NZ still has room to cut rates, but I just wonder how much unwinding has already occurred....

Lanna, how bout a Tits n Ass (TA) of the NZD/THB? Just for fun....

Hi jcon,

I don't have any data (save for Yahoo) on NZD:THB, and what data I have for USD:NZD is limited. As you can see it's in the same expanding triangle as GBP, AUD, EUR. It's a bearish pattern but you'll note it exhibited positive divergances at its recent lows under .50. FYI the $USD Index showed positive divergances for 2 years before its recent bottom in March of last year (which may not be THE bottom).

Anyhow, if it's Thai baht you're exchanging, a VERY ROUGH guess is, the Kiwi is not done going down judging from the wave pattern. OCICBW

[jcon]

Thanks lanna - your input is always appreciated. And yes, it would be THB I would be exchanging... maybe I'll dabble a bit and see what happens (I've been known to 'pull out' on more than a few occasions... ). I'll keep people updated on my losses!

Now if I can just get Crash999 to give me his own special brand of technical analysis, then I can see things from both sides...

If you're right lanna about the Kiwi still having some downside to it vs. the THB..... then oh boy I feel for the Kiwis in Thailand...