AMP Capital’s Dr Shane Oliver breaks down markets across the spectrum and around the globe in his weekly Insights column.
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While the second impeachment of Donald Trump held all the attention in markets on Wednesday, the real threat to the US economy was exposed in the latest Beige Book of economic anecdotes collected by the US Federal Reserve ahead of its first meeting of the year on January 26 and 27.
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When investors choose to invest internationally, they also need to consider the implications of movements in the Australian dollar relative to the associated foreign currency exposure.
Read More2020 turned out far better for diversified investors than had been feared when the pandemic hit, with average balanced growth superannuation funds looking like they have returned around 3%. This followed around 15% last year. But can returns hold up?
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2020 saw the US dollar post its biggest yearly loss since 2017 and the Aussie dollar hit 33 month highs in one of its strongest performances in years. How do they look in 2021?
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The buoyant mid-year economic update and solid November jobs data have added to the headache about the strength of the Aussie dollar at the Reserve Bank as we head towards the end of the year and the long summer break.
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The US dollar fell to a 2-1/2-year low on Friday and the Aussie dollar remained 28-month highs after November’s jobs report for the US disappointed. Friday’s sharp rise in iron ore prices could see the A$ jump back towards 75 US cents off the back of a 7 year plus high for iron ore.
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So what will President Trump do now – the Chinese are not, as he claims, using the value of their currency to undermine the US dollar. The reverse is happening – the Chinese government is allowing the yuan to rise and has been allowing the appreciation to happen for more than a month.
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The already weaker greenback looks set to wobble even more after Fitch Ratings revised the outlook on the United States’ triple-A rating to negative from stable. Fitch’s decision comes at the end of a month where the US$ dropped by around 4.1% against a basket of six major currencies.
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The price of gold has now broken out to a record high and the Australian dollar has risen 30% from its coronavirus panic low in March and broken above $US0.70. What’s driving this and what does it mean for investors? This note looks at the main issues.
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LTR’s ongoing drilling has confirmed the strike and dip continuity of the Kathleen Valley mineralised system, which has now been defined over at least 1.7km and remains open along strike and at depth, with multiple zones of high-grade mineralisation intersected.
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There is good reason to believe we may be close to the low in the $A (or have already seen it): it has already had a large fall; it is just below fair value; the global economic cycle is likely to turn up next year; sentiment towards the $A is very negative; and the current account is in surplus.
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The Australian dollar fell sharply yesterday to levels not seen since the dying months of the GFC in 2009 after the Reserve Bank’s June board meeting minutes made it clear there would be more rate cuts to come.
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Several positives suggest recession is unlikely: the current account deficit has collapsed; the $A helps stabilise the economy; the drag from falling mining investment is over; there is scope for extra fiscal stimulus; infrastructure spending is booming; there has been no sign of panic property selling; economic policy remains sensible; population growth remains strong; and the RBA can still do more.
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Long the “commodity currency” ANZ Bank economists note the Aussie dollar is no longer being supported by commodity prices as has typically been the case.
Read MoreGiven the downside risks for the $A and that being short the $A is a good hedge against threats to the global outlook it still makes sense for Australian investors to maintain a decent exposure to foreign currency via un-hedged global investments.
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ETF Securities’ ZUSD ETF offers investor a cheap and effective US Dollar currency play. ETFS’ Head of Sales, Kanish Chugh, tells Informed Investor more.
Read MoreToday’s national accounts for the three months to December are not expected to be brilliant. In fact, at best they could be between 0.2 percentage points to 0.4 – while some pessimists believe the reading could be a negative 0.1 because of the weakness in household income.
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New Zealand’s Reserve Bank has followed its Australian counterpart again in not moving its key interest rate.
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More evidence that parts of the Chinese economy are slowing as sluggish demand takes hold with producer price inflation posting the slowest rise in five months in September.
Read MoreChina’s central bank has cut the reserve requirement ratio for most commercial banks for the 4th time in 2018 as it seeks to offset the slowing pace of economic activity.
Read MoreFamous last words, of course, but it looks like US78c was the Aussie dollar’s peak and it could be downhill from here.
Read MoreAs for China, and the doom scenarios about it, here’s a chart of the renminbi US dollar exchange over the past 12 months:
Read MoreThe US dollar surged again on Thursday after the Fed raised rates for the second time, and also raised the forecasts for next year. It’s now up 6% since before the US election.
Read MoreThe Aussie dollar broke below US74c and is clearly the thing to watch this week as markets continue to digest the result of the US election.
Read MoreIn recent days the Australian dollar ($A) has undertaken a marked depreciation against the US dollar ($US). It remains to be seen how far this will continue, but most commentators (including Clime) have long been suggesting that a significant adjustment is on the cards.
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