Posted by Adrian on March 25, 2009
Further to my post Australia’s economic situation. The AAA rating has been stripped from local governments as the Federal government guaranteed banks deposits and their debt. This in turn has made it hard for Australian States to raise capital from their own debt (bonds). Now the Federal government will now guarantee State government debt.
This will put massive pressure on the Government balance sheet and it will need extra funds, hence the Reserve Bank of Australia will begin to print money. Either this or they start to raise interest rates to push the Australia dollar up to try and raise capital via the mining industry. Of course the problem is the world is gripped in a deflationary and currency downturn. But being a commodity producing country a higher AUD could become an investor haven. Unfortunately the US has sparked a money printing bonazza and currency meltdown (globally), as all currencies are trying to debase at the same time; more so commodity producing countries and their currencies as they compete with deflation on commodity prices. As China is shopping around.
Posted in Finance and Economics. Strategy and Society | Tagged: AUD, Australia bankrupt, China demand, commodity deflation | Leave a Comment »
Posted by Adrian on February 3, 2009
I wrote a blog post in November 2008 titled Confused markets, deflation/stagflation threats and our old friend gold. The post detailed that I personally did not see extended or significant rallies in global stock markets into 2009. As it turns out that January 2009 was the worst month in history for the Dow. Although it was said that a rebound could occur from January 2009 to March 2009 this appears unlikely, as new lows may continue into March 2009. The volatility has fallen off somewhat, some commentators claim that the markets are unsure, hence the term that I use ‘confused markets’. But I think the market is now factoring in the absolute failure of the global economy in 2009, rather that potential upsides from Government intervention. In fact in my opinion the market now have factored in that government intervention does not work and won’t work to stimulate the markets, so a downside persists within the current market psychology. So it could be argued that the market is looking for that bottom, ignoring government intention as a possible market primer (as mentioned it has failed overall only effecting the bond markets factoring in a massive US deficit and the currency markets pricing in rapid value destruction of the US dollar).
The Australian economy (like the rest of the world) is in trouble, or more so, as it is a economy the relies heavily on commodity exports to Asia, notably China. As most governments have increased huge fiscal spending, Australia is leading the forefront (per capita) with a massive $42 billion (AUD) stimulus package, mimicking Obama $900 billion; the stimulus package will attempt to fuse infrastructure spending as the main driver of GDP growth. Of course this is a fallacy, especially for a country that relied heavily on capital flows from overseas investors and commodity exports. Even as the stimulus plan was introduced ( including the Australian Reserve Bank cutting interest rates at 1.00%) the market didn’t rally as expected. Again, the market is now settling into a downward trend as it is pricing in a deflationary and global slump into 2009
refer to graph (Australian all ords):
The main sell will be the AUD, already crunched dramatically last year 1st October 2008 bouncing off .60 cents from highs of .98 cents (July 1st 2008). The AUD is is trading in a very tight range between .65 and .62. Both CCI’s show a slight recovery from an over sold AUD, I would say that is temporary with the AUD going to come under huge pressure again breaking through support of .62 and falling lower under .60. All this depends on the government of Australia trying to raise capital from it’s debt and combined with private capital investment leaving Australia. Eventually Australia will have a bond down grade and will lose it’s credit worthiness.
Please refer to graph (click for larger image)
Posted in Finance and Economics. Strategy and Society | Tagged: AUD, Australian debt, Market slump 2009, recession, sell AUD | 1 Comment »
Posted by Adrian on October 8, 2007
Both the Aussie dollar the EUR have both reached record highs against the USD, as the USD is now on a steady decline against most major currencies. This dramatic decline in the USD was the obvious trade off from the massive half a percent rate cut (0.50%) that the US Federal Reserve made on the September the 18th 2007. The European Union is concerned with an ever increasingly high valued EUR causing havoc with European export markets, but as the USD loses value high yielding currencies gain value such as the EUR and AUD.
Both Europe and Australia are facing high inflation, hence the apparent tightening bias of the Reserve Bank of Australia and the ‘wait and see’ position of the European Central Bank who kept rates on hold at 5.75% (4th October 2007) due to the lingering fear in the credit markets.
This shows the wide spread disproportioning of the global markets as they become more and more unbalanced – due to the massive financial problems forming in the US.
It would be worth watching what the European Union will do after the talks open on the 8th and 9th October 2007 regarding the overvalued EUR. We might see a slight sell off against the USD . I see the EUR coming down from highs against the USD of 1.41 through to the range of 1.38 and 1.39 EUR.
The AUD is very overbought, possibly contributed by the massive amount of carry trading that is taken place. Again we may see a sell off as the RBA may intervene and sell currency to bring down the dollar. As the high dollar is trading at a record range of 90 cents to the USD. I suspect it will drop town to the 88 – 89 range.
LSE news report on the the International Monertray Fund outgoing chief Rato, who says the global credit crisis is still ongoing
CNN Business report on the high EUR and the European Union concern.
Posted in Finance and Economics. Strategy and Society | Tagged: AUD, EUR, FX trading, global credit crisis | 1 Comment »