# Why is the $A taking a pounding?



## Pager (12 October 2008)

With one of the worlds strongest economy's, a well regulated banking system, politically stable, huge mineral and natural commodity wealth why is the $A tanking 

Not just against the major currency's like the US$, Yen and Euro but against nearly every country in the world, its below 1 Singapore dollar, has fallen about 30% against the Thai Baht were political instability and corruption are rife.

Reading the financial press you see quotes that its sold down as people move there money to so called safe investments and infers the $A is high risk 

what have i missed here, surely it would be the other way round


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## Smurf1976 (12 October 2008)

*Re: Why is the $A taking a pounding ?*

Australia has, as a % of GDP, one of the largest current account deficits in the world. That puts is in a rather bad situation. 

Add in the falls in commoditiy prices, meaning less reason for buyers to need AUD, plus the resultant economic effects likely leading to lower interest rates (already happening) and there aren't too many reasons left to be holding AUD.

The "Australia has a massive surplus" argument is a convenient political one that hides the truth. Yes, the Australian government has a budget surplus. But Australia as a country is running up debt faster than just about anyone else. As a % of GDP we're around the point now which historically has been associated with some sort of crisis so it won't be a surprise if we end up with trouble.


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## noirua (12 October 2008)

*Re: Why is the $A taking a pounding ?*



Pager said:


> With one of the worlds strongest economy's, a well regulated banking system, politically stable, huge mineral and natural commodity wealth why is the $A tanking
> 
> Not just against the major currency's like the US$, Yen and Euro but against nearly every country in the world, its below 1 Singapore dollar, has fallen about 30% against the Thai Baht were political instability and corruption are rife.
> 
> ...




Monies have been pulled out of Australia as commodities fall. Rio Tinto is now in trouble over iron ore supplies as China reduces requirements and many companies may declare force majeure or go bankrupt. (Maybe BHP Billiton will pull the bid for Rio Tinto?)
Foreigners are big losers as resource stocks fall, and as you say, the AU$ tanks.

Good news for producing mining companies, providing they have loads of cash, as commodities are still priced in US$'s, no doubt they'd like to see par with the US$, nearly happened once and could happen this time.


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## Trembling Hand (12 October 2008)

*Re: Why is the $A taking a pounding ?*

You can insert all the economic theories and speculations ya want but still it comes down to actions by a group large enough to flood the supply/demand so massively we set records.

Hedge fund redemption's. 

They don't call it hot money for nothing. When they move they burn.


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## pan (12 October 2008)

*Re: Why is the $A taking a pounding ?*

Hi

The main reason is the large CAD, this is coupled by the fall in world commodity prices falling.

The other reason is interest rates, it has now been cut from a high of 7.25% and there is a chance  the RBA will cut interest rates further in the coming months, this means investors will look to other countries or assets for better returns.

cheers


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## agro (12 October 2008)

*Re: Why is the $A taking a pounding ?*

labour + rates


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## Warren Buffet II (12 October 2008)

*Re: Why is the $A taking a pounding ?*

The $A is taking a pounding because it sucks big time.

Resources is a big buble, property prices are the most expensive in the world, RBA is reducing interest rates and as such inflation is going to hit 6% to 7%, so any investment in saving accounts or TD are worthless.

Add to that a poor government with a poor economy management track.

All that is a recipe for disaster.

I believe we will soon see mining companies going broke because of two reasons:

1) High costs in AU$ against income in US$
2) Commodity prices dropping and will keep dropping even more.
3) The believe that China will save us )))

WBII


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## IFocus (12 October 2008)

*Re: Why is the $A taking a pounding ?*



Trembling Hand said:


> You can insert all the economic theories and speculations ya want but still it comes down to actions by a group large enough to flood the supply/demand so massively we set records.
> 
> Hedge fund redemption's.
> 
> They don't call it hot money for nothing. When they move they burn.




Yep and as Nick Radge pointed out flight to US T Bills


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## brty (12 October 2008)

*Re: Why is the $A taking a pounding ?*

As per usual TH has it right again.

If the CAD were the reason than we should have tanked 1, 2, 5, 10, 20 years ago.

All markets are about supply and demand at the margin (the 1-2% of anything that actually changes hands). While there is a flight out of any currency then the demand for that currency falls. It does not have to be rational or reasonable. 

The sellers of the $Aus want out and it appears at any price. End of story until they are finished.

brty


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## fimmwolf (12 October 2008)

The current account deficit (CAD) is only 12 billion. It actually dropped 36% from the March quarter to the June Quarter.

Our Net foreign debt on the other hand is 600 Billion.  


The AUD is often referred to as a "commodity currency" 

The expected demand for commodities is significantly less than what it has been recently. 



> Australia's fifth-largest iron ore exporter, Mount Gibson Iron, shocked the sharemarket yesterday by warning that its Chinese customers were asking it to delay shipments as demand slowed due to economic uncertainty and the tightening of credit facilities.




http://www.brisbanetimes.com.au/new...-metals-fatigue/2008/10/10/1223145582166.html

China's growth is expected to slow from 12% to around 7 or 8%

China is our second largest export destination. Japan being the largest.


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## Pager (13 October 2008)

Would have thought with the government guaranteeing deposits, china still expecting 9% growth and apart from NZ some of the highest interest rates in the world there may be a sudden U turn in sentiment to the $A. 

There's even question marks over Switzerland's Banking system, so were may the big boys of finance find a safe haven ?, maybe a politically stable mineral and commodity rich country with a well regulated banking system that may avoid any steep recession if at all with high interest rates and deposits backed by a government in surplus ?.

Im no expert and dont understand allot of what drives these currency markets but from my layman's perspective i now were i want my cash parked.


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## Glen48 (13 October 2008)

The CAD is what the Government owes..correct? Yet Costello told us he had paid it off.
The other is what the general public owe including the 44Billion some owe on Bank card...correct?
Just think if you had of gotten USD about 5 weeks ago you could have made 30-40% ROI
Where will the AUD go to day??


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## Glen48 (13 October 2008)

The CAD is what the Government owes..correct? Yet Costello told us he had paid it off.
The other is what the general public owe including the 44Billion some owe on Bank card...correct?
Just think if you had of gotten USD about 5 weeks ago you could have made 30-40% ROI
Where will the AUD go to day??


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## Panacea (13 October 2008)

Glen48 said:


> The CAD is what the Government owes..correct? Yet Costello told us he had paid it off.
> The other is what the general public owe including the 44Billion some owe on Bank card...correct?
> Just think if you had of gotten USD about 5 weeks ago you could have made 30-40% ROI
> Where will the AUD go to day??




The CAD is the the balance of imports minus exports (a current account _surplus_ being higher exports than imports in a given period). Peter Costello paid off most (i believe?) of the Government debt by selling assets - Commonwealth Bank for example.  The CAD contributes to our net foreign debt, which is currently standing at over $600 billion (over 50% of GDP). 

Net foreign debt is held by the private sector - banks & businesses. The majority of this debt is held by the financial sector, and in turn by us (banks have borrowed heavily from overseas to fund our mortgages and credit cards). The problem with Net Foreign Debt is that the more it increases, the greater the interest bill, which in turn encourages more borrowing to fund the interest and so on. 

When John Howard came to power our Net Foreign Debt stood at around $190 billion and tripled under his, and Costello's leadership. This is despite the resources boom. The key to tackling it is to become more productive and turn our current account deficits into surpluses, and to become a nation of savers rather than spenders.


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## Indie (13 October 2008)

Pager said:


> Would have thought with the government guaranteeing deposits, china still expecting 9% growth and apart from NZ some of the highest interest rates in the world there may be a sudden U turn in sentiment to the $A.
> 
> There's even question marks over Switzerland's Banking system, so were may the big boys of finance find a safe haven ?, maybe a politically stable mineral and commodity rich country with a well regulated banking system that may avoid any steep recession if at all with high interest rates and deposits backed by a government in surplus ?.
> 
> Im no expert and dont understand allot of what drives these currency markets but from my layman's perspective i now were i want my cash parked.




A significant decrease in real estate prices will undermine the banking system the same way it has in the US. This hasn't happened in Australia yet, but even the PM has conceded this is on the cards over the next few years. This will also drive interest rates down and slow the economy. This will precipitate a further slide in the dollar. The decrease in economic activity will translate into decreased tax revenues and an increase in social security liabilities. This will turn the budget surplus into a deficit. The Australian government will not be in the position to support wholesale bailouts either.

The Australian government and the banking system have conspired over last two decades to create the biggest real estate bubble in history allowing banks to fleece average Australians.  Every time the real estate bubble looked like slowing down the government poured fuel on the fire for their bank buddies: negative gearing, CGT discounts, stamp duty exemptions, 1st home buyer grants, etc. Instead of investing in technology, production or innovation we poured billions of dollars into real estate and the banks got rich. That's not good governance, that's encouraging reckless misallocation of capital.


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