What's your prediction on the Australian Dollar?

[markis10]

unemployment numbers due today. if worse than expectations, AUD will drop. if better than expectations, it will rise.

What happens in Australia has very little effect on the dollar, and changes are quickly reversed overnight.

 

[Edge]

What happens in Australia has very little effect on the dollar, and changes are quickly reversed overnight.

Incorrect, and a massive generalisation.

 

[Aussie_flyer]

What happens in Australia has very little effect on the dollar, and changes are quickly reversed overnight.

Is there anything you don't know, just wondering?

 

[Edge]

From: The Age - Business, World & Breaking News | Melbourne, Australia

AAP
The Australian dollar gained half a US cent after the release of stronger-than-expected jobs figures.
Australia's unemployment rate fell to 5.5 per cent in May, with total employment up by 1,100, seasonally-adjusted figures from the Australian Bureau of Statistics show.

 

[JohnK]

unemployment numbers due today. if worse than expectations, AUD will drop. if better than expectations, it will rise.

So something going on every day?

Sorry cant help but laugh. Yesterday investor confidence was high. Today investor confidence is low. Tomorrow investor confidence is high for other reasons. And then investor confidence low again, and then high again and so on.

Yes I am naive but I find it strange that investor confidence can change that many times a week or even that many times a day.

 

[Edge]

So something going on every day?

Sorry cant help but laugh. Yesterday investor confidence was high. Today investor confidence is low. Tomorrow investor confidence is high for other reasons. And then investor confidence low again, and then high again and so on.

Yes I am naive but I find it strange that investor confidence can change that many times a week or even that many times a day.

Pretty much every day. Trillions of dollars of FX are traded every day. Traders will latch onto any piece of data and trade (and hopefully profit) as a result. Some of the data is more significant than others. Unemployment is a biggie. Currency values are fundamentally tied to interest rates (or, more specifically, the anticipated interest rates).

Low growth = need to kickstart the economy = lower interest rates = lower dollar
Low unemployment = need to maintain or increase rates = higher dollar

 

[markis10]

Incorrect, and a massive generalisation.

Have to agree to disagree on that one, its long been known that the fundamental strength or weakness of the Australian dollar is driven by what happens overseas mostly (when it comes to the big gains and falls vs daily oscillations), of three key fundamentals intrinsic to the AUD, only one is local:

1. Base metal pricing
2. Overseas market sentiment (the AUD is a risk on currency, when the Dow is up by more than 100 so is the AUD)
3. Local inflation.

Most Amateur traders look at interest rates as one of the local triggers, while professionals will have watched the inflation data two weeks earlier, assessed other local data feeds and made their move, often being out of the market when rates changes are announced.

Is there anything you don't know, just wondering?

Plenty, but I have been in the import business for over 10 years, hence the travelling, and a minor knowledge of what makes the dollar tick.

 

[whatmeworry]

1. Base metal pricing

Plus Iron Ore has come down about 15% in the last 2 months.

 

[Edge]

Have to agree to disagree on that one, its long been known that the fundamental strength or weakness of the Australian dollar is driven by what happens overseas mostly (when it comes to the big gains and falls vs daily oscillations), of three key fundamentals intrinsic to the AUD, only one is local:

1. Base metal pricing
2. Overseas market sentiment (the AUD is a risk on currency, when the Dow is up by more than 100 so is the AUD)
3. Local inflation.

Most Amateur traders look at interest rates as one of the local triggers, while professionals will have watched the inflation data two weeks earlier, assessed other local data feeds and made their move, often being out of the market when rates changes are announced.

IMO it's the perceived future strength of the Australian economy vs the perceived future strength of the other economies. The DOW is only down about 3% over the past month while the ASX / AUD are down ~10%. A couple of weeks of 'good' economic news and you'll find it starts creeping up. Risk is still a major factor, which causes the drops to be much more rapid & dramatic than the rises.

 

[drsmithy]

And any attempt to make it real again is derided as an erosion of workers rights.

That's because 99% of the time it is. Employers want to be able to hold employees to ransom with minimal wages, rights, and job security. They want all the rights and rewards, but none of the responsibilities.

Employee rights and protections have gone either down, or at best sideways, for decades, and workers have consequently been getting screwed more and more. This is easily seen in the steady decline of wages share of GDP (while profit share has gone through the roof).

Employers haven't had it so good in living memory. Relatively few legislated workers rights, historically low levels of unionism and other labour organisations, easy access to imported labour, they offer little to no on-the-job education or training, and the massive productivity increases over the last few decades have been nearly entirely captured by that tiny percentage.

That they continue to complain because workers can still get things like penalty rates and holidays is just a testament to their greed.

(It's hardly a phenomenon unique to Australia, either - the UK and USA are much farther down the same path.)

 

[drsmithy]

I am a fan of the longer trading hours and I look at places like Singapore and Hong Kong as the example of where retail makes sense. To a certain extent, the longer trading hours there is part of the reason why those places feel so much more alive - you have people out all evenings of the week and on Sundays. It's a very different system however because businesses can afford the wages there.

Of course they can. Singapore has one of the most unequal societies and largest wealth gaps in the civilised world. All those people keeping those shops open make barely enough to survive on (in fact, they probably don't even make enough without working multiple jobs).

With one of the highest minimum wages in the world here, as well as generally the cost of doing business in Australia (tax, compliance and regulatory), I suspect it just wouldn't make business sense.

The real villain in cost of doing business in Australia (and consequently the cost of most things) is our ludicrously overvalued real estate. How much more profitable do business start to look if their rent is halved ? How much more money do households have to spend on productive endeavours if their mortgages are halved ?

 

[MEL_Traveller]

What happens in Australia has very little effect on the dollar, and changes are quickly reversed overnight.

i suppose it depends how you classify it... but interest rate drops have a massive effect on the value of the dollar. our currency was appealing when rates were high, not so much after the latest cut....

 

[blaz]

94 cents at the moment (US)and most other currencies moving south....my wife and I are about to travel around the world with most hotels prepaid,,,but beware,, some hotels own websites claim to lock in the cost but only in their currency ..however they may not extract the funds until a few weeks before your arrival ...this cost me $50 aus from the date I booked.(2 months before)..the moral being.. use sites that take your money immediately ...that way you know how much you're paying in aus. dollars...Only a fool would try to predict the value of the dollar in more than a week and forget about its' value in a year....the only reliable gauge is the direction it's travelling day by day.

 

[Flashback]

Plus Iron Ore has come down about 15% in the last 2 months.

Time to jump ship then! :mrgreen:

 

[uvkelly]

Lets face it the Aussie $ is probably down for some time for the among other reasons:
1. The interest rate has been reduced by the RBA.
2. The major mining companies have published reports showing a reduction of 40% in Australian investment over the next five years. Had a Rio Tinto employee in my office today and they have terminated many contractors over the few weeks since releasing this information and his sites staff has been reduced by 30% over these few weeks.
3. The major motor companies (apart from Holden(GM) at this stage) have said they are winding down Australian production.
4. china's reduced growth forecasts.
5. Growth in the USA (at least against the US$).
These items do not instill confidence in the overall currency market let alone what the potential is to the unemployment rate in Australia which also has an impact on currency rates. It is a shame but I don't see the $ approaching par with the US again in the near future, hopefully some other factor will change this.

 

[grubbidok]

The real villain in cost of doing business in Australia (and consequently the cost of most things) is our ludicrously overvalued real estate. How much more profitable do business start to look if their rent is halved ? How much more money do households have to spend on productive endeavours if their mortgages are halved ?

Praise be to Jeebus that someone else gets this!

Everyone keeps talking about the Big Mac Index and trying to compare to overseas prices for the same item, where in pretty much any other country there the aren't over-inflated overheads of rent as much as Oz. Companies are going to pass that increased overhead on somehow! Also - everything in Australia has always cost more than overseas. It did when the dollar was 0.48 and it did when the dollar was 1.08. It still will no matter where the dollar goes. Things being more expensive at the moment (as these consumer measures are based on) is due to Australia being Australia, not the dollar value.

The cost of business in Australia isn't that high either. You want to see over-regulation? Go to the land of the free market - the US is one of the most over-regulated jurisdictions I know. It's just the other costs (largely rent and inputs) are so much lower that that makes it easier to open business. There are also friendlier implications for failure as well (e.g. bankruptcy, mortgage), so less risk in giving it a red hot go. People who complain about the cost of business in Australia probably haven't tried to set up in other countries (and I mean comparable developed countries, not India or China). They're in for a shock if they do.

Minimum wage nowadays means sweet FA in Australia as companies have found a way to get more for less by engaging self-employed contractors for jobs that used to be done by 'employees' (as an example, nearly every private college in Australia is already doing this. Some now require an ACN as well as an ABN to get around new Fair Work rules). For 'developed country' jobs minimum wage doesn't factor in as much anyway, as it really only looks at low-end jobs that, frankly, no developed country really does much of anymore. US may have lower wage levels, but to retain good staff you also need to factor in the extra benefits that are covered by the government here (healthcare for one), though admittedly super is 'hidden' (pseudo-contracting sorted that out though too). In small family businesses there is rarely a 'wage' issue anyway as people work for themselves.

Motor companies are leaving because of the high dollar? Mitsubishi left when the dollar oscillated between 0.80 and 0.90. They haven't been profitable for decades and it's only government handouts keeping them open. Good riddance - I'd rather they spend my tax dollars on developing industries relevant to the Australian economy in 2013, not 1963.

I definitely agree on the trading hours making things more alive. That could be fixed anytime by government amending legislation and bylaws, can't see wages being as much of an issue as unfriendly councillors.

A drop in mining creating problems? The only risk is this fixation we have that mining is all that matters and is our economic salvation. Agriculture accounted for more economic growth than mining in Australia, and Australia is primarily a service economy. Some areas are dependent, but this creates more problems than solves as Dutch Disease kicks in (just buy a coffee in Perth or a lettuce in Moranbah - $140k is nice but not if it only gets you what $60k does in Sydney). We are also just about to see the damage to communities (in my work we call it bored miner's housewife syndrome). Depression, divorce and loss of community in mining areas has enormous unaccounted economic impact in those regions, and governments/societies have to pay for that as well as reap economic 'benefit'. Even if mining fails the Oz economy will be strong - there will just be some very economically depressed areas within an overall prosperous nation (like Tasmania is now, or like Central Queensland was when I grew up). Qld and WA need to get over themselves and their 'we're keeping Australia afloat nonsense' (BTW WA was kept afloat by Australia for the first 100yrs of Federation, even if WA's rhetoric is true - and it's not - it's about bl**dy time they started paying their own way! Both Qld and WA are heading to recession, NSW is growing - so much for mining!) and the government needs to focus on supporting other aspects of the economy.

The only factor I can see as being relevant is the RBA reducing interest rates. One of the draws of the AUD is the comparatively high interest rates. No surprise lower rates = lower AUD. They won't stay down forever though.

Most of my travelling shows me just how well the Australian economy is doing compared to overseas, despite our entitled whingeing and pandering politicians trying to say otherwise. The economy is strong, compared to the rest of the world, full stop. It will be strong without mining or with lower commodity prices. I think the dollar deserves to be at parity, it might dip but I can't see it staying down for long.

I do have to admit though that I am about to head to Europe for 4 weeks on Wednesday, so I am rooting for a rally. My points still stand though.

FWIW my prediction is 0.95-1.05 is the 'new normal', much as 0.75-0.85 used to be. I personally think it was the USD that was historically overvalued, not the AUD recently.

Whew, got a little carried away there. </rant>.

 

[leadman]

be prepared for 0.85 to 0.88. Mining boom over, no manufacturing, our interest rates back in the field with the others. there is no growth any more.

 

[777]

The markets are pricing in a coalition victory and a switch to austerity?

 

[Flashback]

The markets are pricing in a coalition victory and a switch to austerity?

Austerity .... so sick of hearing that word in the UK.

 

[phred505]

be prepared for 0.85 to 0.88. Mining boom over, no manufacturing, our interest rates back in the field with the others. there is no growth any more.

I think that this is a small price to pay (for o/s travellers) so that our exports pick up again.