Thursday, November 5, 2009
Look To Australia For Interest Rate Direction
While the Reserve Bank followed form and lifted its key interest rate by 0.25% to 3.50% yesterday, there's a tip of another kind from the post meeting statement: watch the impact of the Australian dollar.
The stronger dollar is already causing pain to exporters, tourism operators, some importers and others, but stands to cause more with the bank suggesting the 90-plus US cent valuation is here for a while.
The bank said in its post-meeting statement "The Board noted that the rise in the exchange rate is likely to constrain output in the tradeables sector and dampen price pressures."
In other words resource companies and other exporters (and companies receiving dividends and other payments from offshore) will find it much tougher, while those domestic businesses who ride the dollar down (retailers, cars etc) will gain, or rather, have to watch their pricing and margins as the currency's strength exerts continuing downward pressure on prices.
It's a tip for investors to watch.
Ms Beacher expects the Reserve Bank of Australia to look through what may end up being tepid third-quarter economic growth and raise interest rates further in December.
The RBA is the only central bank in the Group of 20 nations to be raising interest rates. Its cash-rate target now stands at 3.5 per cent, after consecutive hikes of 25 basis points each in October and November.
Prepare for the Great Depression.