So what’s the bigger story for investors – dollar down to new 32 month lows – or the Australian share market shedding most of this year’s gains and leaving those invested in the market and in the various forms of superannuation looking at a very limp end to 2012-23?
Let’s start with the Australian dollar. Down it went again yesterday, falling sharply against the greenback and other currencies, testing lows below 95 USc, and hitting a series of new 32-month-lows.
The currency went as low as 94.35 USc.
The dollar has not been this low since September 2010, when it was rising from lows reached in late 2008 and early 2009 around 61 USc.
AUD Weekly – Catching up with reality
It has lost more than three cents so far this week and is now down more than 10 US cents from its most recent high in late January.
But last night it bounced strongly, rising 2 US cents to a day’s high of 96.74 US cents. It was trading around 96 US cents this morning.
The reason for the big jump, a huge sell off in the US dollar after the European Central Bank indicated that rate cuts were done for the time being.
The US dollar fell sharply against the yen and the euro – the Aussie dollar rose as a consequence of these other moves, despite the recent selling.
At around 94.50 USc, the dollar has lost 11.7% against the euro (from 81.73 euro cents at the end of March to 72 euro cents yesterday). Against the greenback, the currency has lost 10.8% from that January high of $US1.5098.
Against the pound, the dollar is down 11.4% from the March high of 69.26 pence. And against the yen, the dollar has dropped 11%.4 from a 2013 high of 105.21 yen.
Of course retailers and others are not in fashion, partly because the dollar will lift the cost of the rising level of food and general merchandise imports.
Car prices will soon come under pressure, as will air ticket costs for offshore travel.
Some companies, such as insurer, QBE, are doing well with the shares up around 18% this year, but down around a $1 since its most recent highs last month to around $15.27 yesterday.
But Newcrest shares continue to sink, despite the fall in the dollar.
They fell more than 6% yesterday to a new 52 week low of $13.17 and closed at $13.44. That’s the lowest level since 2005.
Investors still remain concerned that despite the rise in the dollar, the company can’t disguise the destruction in value from the botched Lihir takeover and production problems elsewhere in the company.
So the falling dollar won’t help every stock. Take Qantas.
For a mixture of reasons, Qantas shares haves fallen sharply since their most recent high of just under $2 in mid April. They closed at $1.48 yesterday, down 0.8%. The falling dollar is hurting (it increases fuel costs and will cut into the attractiveness of people travelling offshore if it continues).
Woolworths (owners of BigW) and Wesfarmers (owners of Coles, Target, Kmart, Bunnings and Officeworks) have both fallen more than 10% in the past two months, with a lot of that fall down to the fear that the weakening dollar will lift costs and narrow profit margins over time.
But over time it should have an impact on internet buying from offshore.
And what’s the fall mean overall? Well for the country as a whole it will go a long way to offsetting the weakness in export prices and demand, and it will also cushion the parts of the domestic economy, such as retailing (bad for Amazon purchases), tourism (more foreign visitors and fewer locals going overseas) and the export sector where incomes will be supported rather than slashed by a dollar above $US1, even if world prices weaken.
But there will be an impact on inflation, especially on the prices of traceable goods which have been falling in the past two years because of the strength of the dollar, while non-traceable goods and services have continued to rise strongly (helped by soaring prices for electricity).
Petrol prices will start returning to higher levels, which will have an impact on consumer spending.
