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John from Moneycorp

Australian Dollar Update 28/06/2011

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Prospect of renewed QE puts sterling

to flight

 

MPC apparently gave serious consideration to more asset purchases. RBA reverses interest rate expectations again.

 

Last week cost the pound another quarter of a cent against the Aussie, but there was never a sense of panic. There was not even much sense of movement, with a range of less than three cents for a second week.

 

There were very few economic data to make it move. Public sector net borrowing was £15.2 billion –less than the expected £16.3 billion. The two surveys from the Confederation of British Industry pointed in opposite directions: industrial orders were up by 1% when they should have fallen by -5% and retail sales fell by -2% instead of rising by the predicted 12%. British Bankers' Association mortgage approvals in May numbered 30,500 – better than the previous month's 29,700, but still pretty pathetic.

 

So it was not the ecostats that sent the pound lower at mid-week. It was the Bank of England. On Tuesday Paul Fisher, the Bank's director of markets and a member of the Monetary Policy Committee (MPC), told a conference in London that the possibility of further quantitative easing was still on the MPC’s table. "It hasn't been ruled out", he said. If investors did not like the sound of that, they were mightily unimpressed by the minutes of the June MPC meeting, which came out the following day.

 

There was no problem with the 7/2 vote in favour of keeping the Bank Rate at 0.5% for a 28th month. With Andrew Sentance having completed his three-year term on the Committee at the end of May, one of the three votes for a rate increase had gone. Mr Sentance's replacement on the MPC, Ben Broadbent, might favour higher rates but he saw no point in going head-to-head with the governor at his first meeting. The problem lay in the Committee's apparently protracted discussion about renewed asset purchases. As Paul Fisher had warned the previous day, further quantitative easing is still up for grabs. For investors who favour currencies with rising interest rates, this was a potential step in exactly the wrong direction. Sterling took an immediate hit and carried on lower.

 

The week's two Australian ecostats put the Westpac leading index at 0.2% in April after an upwardly-revised 0.6%, and the Conference Board leading index at 0.1% following a -0.1% for March (revised down from +0.4%). Taken as a pair, they did not tell investors much.

 

The one bit of excitement arose from the minutes of the Reserve Bank of Australia's policy meeting earlier this month. Recent comments by RBA Governor Glenn Stevens had been taken as hints that Australian interest rates would be going up sooner rather than later. Tuesday's minutes appeared to contradict that urgency. The penultimate sentence said that the Board "therefore considered that the current monetary policy setting was appropriate”. When central bankers talk of a policy rate being "appropriate", they mean they are not thinking of changing it. The news did not go down well with investors and the Australian dollar received a half-cent smack.

 

This week's Australian statistics cover private sector lending, the AiG manufacturing purchasing managers' index and new home sales. UK statistics are only slightly more plentiful this week compared to last. Today brings the finalised figure for first quarter gross domestic product, together with business investment and the current account deficit. On Wednesday there is money supply, consumer credit and the overall mortgage approvals number. Nationwide's house price index might or might not emerge on Thursday, and Friday's sole offering is the manufacturing purchasing managers' index.

 

Like the other commodity currencies, the Australian dollar is feeling the pinch as a result of the blow dealt to investor confidence by the potential bankruptcy of Greece. But sterling is also under the cosh, partly as a result of the reawakened fear of QE and partly because a disaster in Greece would do no favours to Britain. Buyers of the Australian dollar would be wise to continue to hedge their risk, fixing a price for up to half the money they need with a forward purchase.

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is it wise to transfer pounds to $ now ? or will the pound get better in few months time ?? thanks

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From the sterling perspective, the short-term outlook still does not look good for Aussie dollar buyers – I have briefly summarised below the current situation in relation to the Australian and UK economy.

 

Australia

 

Interest rates in Australia likely to go up (this is seen as a sign of strength for investors therefore boosts the Aussie) – the current interest rate of 4.75% is also one of the highest rates in the developed world

 

 

Asian economy doing particularly well and supplies raw material to Australia and this, again, has a positive impact of the Aussie dollar – the Asian economy is one of the few growth areas in the world

 

UK

 

Pound still very fragile and interest rates remain low

 

Any news (whether it be positive/negative) has a significant impact on the strength of sterling (due to its fragility)

 

Thanks

 

John

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Hi,

 

Any info in regards to the euro/aussie dollar exchange.

 

thanks a million.

Just abit dismayed at the exchange rate going over!!

 

kind regards

cazmayo

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Having followed the Exchange Rate over 2 years now and monitoring the economic situations contributory to the results, I would say that as soon as the Chinese Yuan is put under pressure, ie. its value falls, the Aussie will come down in value too. Australia is heavily exposed to the Chinese Economy. It seems China is currently struggling with high Inflation, raising their interest rates. Recently in the news it transpired that there are huge debts in Regional China too. Investors are getting a little spooked by these announcements and are observing the situation very carefully. Remember Investors don't have any loyalties to anyone. All they are interested in is hard cash and they can drop their latest 'sweetheart' with a seconds notice. As to Pound Sterling - this has taken somewhat of a battering over the last 12 months!! I don't believe the UK will ever be a Manufacturing heaven anymore, but the UK has other expertise, believe it or not, still the Finance Industry, as well as other service sectors - this has recently done well too. As soon as the US Dollar gains favour again, the pound will follow. This will then also swing the balance of the Yuan with investors starting to back the Greenback again. Basically I am a great believer in what goes up must come down etc. Europe is struggling and this is Chinas' biggest export market. Consequently we are already witnessing something big here.


Applied: 16.12.2008, Marketing Specialist, visa 475 FS, off-shore, IELTS: 8 (Academic) CO = Waiting, waiting and more waiting :SLEEP:

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Guest guest30038

Interest rates in Australia likely to go up (this is seen as a sign of strength for investors therefore boosts the Aussie) – the current interest rate of 4.75% is also one of the highest rates in the developed world

 

 

 

The interest rate has been held steady for some time now and 3 predictions (from "experts") at the last bank meet, were that the next movement is likely to be down, due to slowing in all sectors except mining

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Hi,

 

Any info in regards to the euro/aussie dollar exchange.

 

thanks a million.

Just abit dismayed at the exchange rate going over!!

 

kind regards

cazmayo

 

In relation to the EUR/AUD, the euro has weakened recently (against the Aussie) due to the negative credit worries over some of euro zone countries. Irish government debt is at risk of being cut to 'junk' status by ratings agencies (for the first time ever). This follows after Portugal's government rating was cut to junk on Tuesday – this weakens the euro. Junk status means a country loses its investment grade status and is a very negative indicator for investors.

 

Additionally, in comparison the Aussie is producing some positive data reports, particularly in relation to unemployment (this further strengthens the Aussie).

 

Click here for some news today on eurozone interest rates

 

A rise in interest rates could boost the euro.

 

Thanks

 

John

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kinda thinking what we lose in the exchange we could gain in savings interest rates over there.......but them I'm not financially savvy


Job offer April 2011, Reccie July 2011, 457 submitted 21/09/2011, my medical only 14/10/11, medical submitted 21/10/11 (IT issues), referred 21/10/11, approved 27/10/11, landed 24/4/12, PR submitted (decision ready) June 2012, PR granted August 2013

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An interest rate rise in Europe would exacabate my theory about the' export from china' into Euroland situation even further, as this will definitely mean a slow down in imports from china. What say you?


Applied: 16.12.2008, Marketing Specialist, visa 475 FS, off-shore, IELTS: 8 (Academic) CO = Waiting, waiting and more waiting :SLEEP:

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