Monday, 27 October 2008

AUSSIE MARKETS IN TURMOIL - RBA - BUYS UP TO SHORE UP AUSSIE DOLLAR

Today was another bad day for Australia with the Reserve Bank stepping in to stop a run on the Aussie Dollar - many factors are involved but one of the significant ones is the Asian Carry Trade effect .

We are in a much more precarious situation here in NZ.

So tomorrow will be another interesting day on our own money markets.

We understand that the Govt realises that it is going to have to step in provide a guarantee to the wholesale market - but it wont do anything until late this week so that their " financial skill and prudence" will dominate the media headlines in the last week of the election.


We need a govt that makes decisions on pragmatism not on politics.

This from the AGE


The dollar rebounded from early lows against the US dollar and yen after the RBA confirmed it intervened to shore up the currency.

In recent trading, the dollar was buying 62.22 US cents, after earlier trading near its weakest level in more than five years. Against the yen, the dollar tumbled to 55.1 yen, its lowest level since the end of World War II, before gaining in recent trade to 58.73.

The Reserve Bank confirmed this morning that it had bought Australian dollars in a bid to ensure liquidity for markets.

''What it is increasingly worrying from Australia's perspective is that the Chinese economy is also on the verge of what would be classified as a hard landing,'' said Stephen Koukoulas, Global Strategist at TD Securities.

Stocks extended their falls, touching lows not seen since late 2004, with banks the biggest drag.

Around noon, the benchmark S&P/ASX200 share index was down 55.4 points, or 1.4%, to 3814 points. .

A weaker Australian dollar has mixed consequences for Australia's economy. Exporters with products priced in US dollars, such as mining companies, will book fatter profits in local currency terms.

Importers, though, will be paying more for their products - many of which can only be sourced from overseas - and Aussies planning holidays abroad may start looking closer to home.

And any increase in prices may slow the pace of further interest rates by the Reserve Bank as its board frets over the highest inflation in more than a decade.

Risky business

The Australian dollar's rise to almost parity against the US dollar in mid-July was tied to soaring commodity prices.

Now commodities are falling through the floor and dragging the currency down with it.

"All risky assets have taken a beating in the past week as risk aversion has returned with a vengeance," said Sue Trinh of RBC Capital Markets. "It's all came to a head on Friday."

The closely watched Reuters / Jefferies CRB index slumped a further 3% on Friday, undermining commodity stocks worldwide.

The unwinding of the so-called carry trade - in which Japanese investors in particular bought Australian dollars to benefit from a much higher interest rate than what's available at home - has also pummelled the Aussie.

The Reserve Bank's announcement this morning that it had intervened in currency markets came after speculation of a coordinated intervention by major global central banks circulated on Friday.


That co-ordinated effort "for now has put in place the base but further weakness in coming days below the (60.57 US cents) levels can't be ruled out,'' Ms Trinh said.

2 comments:

Cactus Kate said...

More money down the toilet.

Didn't Cullen previously try to lower the NZD when it was "overvalued". Now to "shore it up"!

NZ doesn't have enough money to play roulette with the "Japanese housewives".

Stuart L said...

The part that worries me is the idea that you manipulate your response to amajor "New Zealand " problem to make your political party look good.

Hey I know Jenny Shipley wanted a feel good factor from Apec and winning the Rugby World Cup to ride into the 1999 election, it did not happen but this is almost Muldoon type tactics or will we see the out going Labour Govt do a 1990 trick again and leave one hell of a mess to be cleaned up. These turkey can make the mess but can they clean it up they have no experience. Nine years of wonderful trade winds and any idiot can run an economy, even run it into the ground.
Is this a deliberate tactic so as to poison the 2011 election for the Govt that cleans up the mess.