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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 10 March 2015

Bam!

Aussie dollar under downward pressure

Even if you don't trade currencies it's always worth keeping an eye on foreign exchange movements since they have such a key role to play in terms of interest rate expectations, asset valuations and the health of the economy.

This is particularly for a resources exporting country such as Australia.

The Reserve Bank has suggested on plentiful occasions that it would like to see a lower Aussie dollar to help manage the rebalancing of the economy.

The iron ore price slipped to a new six year low overnight down 0.3 percent to just US$58/tonne, a massive 70 percent collapse from its bubbly peak, so this is clearly one drivers of the declining dollar.

Of course, there are two sides to the cross, and perhaps more importantly across the drink the latest US jobs report was an absolute rip-snorter as I looked at here.

This sent the US dollar soaring to 11 year highs as the market tentatively begins to price in US rate hikes. 


Easing bias returns

Meanwhile the Reserve Bank has once again adopted an easing bias, suggesting that further easing may be required with policy considered appropriate "for the time being".

According to Bill Evans of Westpac, the Reserve Bank has only used the phrase "for the time being" eight times in its past 67 Statements on Monetary Policy since 2009 and each time this has preceded another cut (on six of those eight occasions the cut was triggered in the very next month).

ANZ weighed in yesterday to predict another interest rate cut in April with perhaps more to come later in 2015.

The net result is that there is pressure on bond prices and the Aussie dollar is gradually slipping down towards the level which the Reserve Bank would prefer to see, touching below 76.4 cents during today's trade.

While technical analysis on currency plays is hardly my thing, the near-term support on the Aussie dollar was thought to be 76.56 cents, and we have just crunched through that...