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.
Survival Seeds

1 comment:

  1. As an Australian citizen i can attest to the bizzarre nature of the last two interest rate rises.Like most other western economies , the govt here has not been lazy about injecting money we dont have into things that should not be kept afloat, hence , while we do have positive economic growth, the effects of stimulus withdrawl will have a detrimental effect on the housing market in particular.Generous first home buyer grants have put more heat into this market with people that maybe should not have a mortgage , now being the proud owners of one, and this into a housing market that has not corrected and becoming less affordable by the week.I don't believe a US style of subprime collapse will occur, but with rates tipped to rise by 1 to 1.5 % next year , there will be pain and anguish in the suburbs.


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