# The Australian Dollar - should the RBA intervene?



## Uncle Festivus (29 April 2011)

Is it just me or have our guardians of the economy fallen asleep at the wheel with regards to the Australian dollar exchange rate? Or is it just part of a grand plan of blame shifting by the RBA so they don't have to take the heat for raising interest rates higher, especially after the latest CPI came in above expectations?

So should they just sit on their hands as Australian industry & manufacturing close down and jobs lost to other countries?

Will this bring on a recession if it keeps going higher?


----------



## Misterlazy (29 April 2011)

I think this is an interesting topic to discuss,

However, please correct my limited knowledge of economics and logic if i am wrong.

Higher exchange rates, can only be corrected by Lowering interest rates correct?
So if the CPI and inflating is on the increase, the option to increase interest rates to dampen that is usually of ordinary nature.

Which begs the question, am i correct in saying the RBA is stuck in a tough position ? 
However, with the floods being a somewhat influence on the higher CPI, won't the RBA eventually give in to reducing our interest rates?

Cheers


----------



## TulipFX (29 April 2011)

Uncle Festivus said:


> Is it just me or have our guardians of the economy fallen asleep at the wheel with regards to the Australian dollar exchange rate? Or is it just part of a grand plan of blame shifting by the RBA so they don't have to take the heat for raising interest rates higher, especially after the latest CPI came in above expectations?
> 
> So should they just sit on their hands as Australian industry & manufacturing close down and jobs lost to other countries?
> 
> Will this bring on a recession if it keeps going higher?




Hi Uncle Festivus,

A rising currency tempers inflation.


----------



## TulipFX (29 April 2011)

Misterlazy said:


> I think this is an interesting topic to discuss,
> 
> However, please correct my limited knowledge of economics and logic if i am wrong.
> 
> ...




Hi Misterlazy,

They could also reduce the exchange rate by printing more money. Both lowering interest rates and printing more money (or the modern version of it - central bank purchasing of government debt) have the same effect - increasing the supply of AUDs. Like any supply and demand situation the price will drop on supply increase.

Interest rates also have an effect on investment flows. Higher interest rates encourages people to hold AUD for the higher returns, and vice versa.

Regarding CPI, the core inflation is actually good. It is the headline inflation which spiked up due to higher produce costs due to the floods. The other statistical measures which remove the outlying products from the basket shows inflation is still under control. I saw a graph of it yesterday, but can't find it now - Alan Kohler also showed a version of it on ABC news last night.

Hope that helped somewhat.


----------



## Smurf1976 (29 April 2011)

Borrow in the US at virtually zero interest rate and lend to Australia thus making a nice profit.

We'll be hit very, very hard when the trade reverses and the tide goes out. With the hollowing out of the economy due to the current situation, we won't have much to fall back on.


----------



## Uncle Festivus (29 April 2011)

It's starting to cost us real money - 



> LOS ANGELES (MarketWatch) -- Australian shares extended their fall into  the midday Friday, as mining majors were dragged lower by a strong  Australian dollar. The benchmark S&P/ASX 200                                                                             AU:XJO                         -1.05%                                                     gave up 1% to trade at 4,822.3. While the Australian dollar eased  against its U.S. rival in early Friday trading, its overnight gains  dragged on a variety of shares, including the top miners.


----------



## warennie (29 April 2011)

Smurf1976 said:


> Borrow in the US at virtually zero interest rate and lend to Australia thus making a nice profit.




That'd be arbitrage if the opportunity existed, unfortunately the exchange rate would remove any possibility for a risk free profit (borrowing USD, converting to AUD = Bad)

Right?


----------



## prawn_86 (29 April 2011)

Smurf1976 said:


> Borrow in the US at virtually zero interest rate and lend to Australia thus making a nice profit.






warennie said:


> That'd be arbitrage if the opportunity existed, unfortunately the exchange rate would remove any possibility for a risk free profit (borrowing USD, converting to AUD = Bad)
> 
> Right?




Its just a basic carry trade. Problem comes when they need to take the funds back home if the rates have changed.

Same thing happened with the AUD/CHF back in the early 90's


----------



## tothemax6 (29 April 2011)

Uncle Festivus said:


> Is it just me or have our guardians of the economy fallen asleep at the wheel with regards to the Australian dollar exchange rate? Or is it just part of a grand plan of blame shifting by the RBA so they don't have to take the heat for raising interest rates higher, especially after the latest CPI came in above expectations?
> 
> So should they just sit on their hands as Australian industry & manufacturing close down and jobs lost to other countries?
> 
> Will this bring on a recession if it keeps going higher?



I think there are some fundamental misunderstandings floating around about exchange rates. For instance, if all of Australia's exporters 'closed down', what would support a high exchange rate?
The exchange rate is high because of actual things. It doesn't just float around randomly. The exchange rate is currently high because there is a high demand for AUDs (ignoring the fundamentals of the USD). There is a high demand for AUDs because AUDs need to be purchased to buy what our exporters are exporting (coal, iron ore, whatever). The high demand for our goods means a high demand for AUDs which means a higher AUD price in terms of other currencies.

The high AUD is not a sign of future economic malais, it is a sign of current economic strength. The RBA (which like all central banks, should not exist) should do precisely nothing except continue to target low inflation by tightening the money supply.


Misterlazy said:


> I think this is an interesting topic to discuss,
> 
> However, please correct my limited knowledge of economics and logic if i am wrong.
> 
> ...



If a central bank wishes to play with the exchange rate of its currency, it simply buys or sells its currency directly on the foreign-exchange market. 
Exactly the same effect as selling a bunch of shares causing the share price to go down.


----------



## Uncle Festivus (29 April 2011)

tothemax6 said:


> I think there are some fundamental misunderstandings floating around about exchange rates. For instance, if all of Australia's exporters 'closed down', what would support a high exchange rate?
> The exchange rate is high because of actual things. It doesn't just float around randomly. The exchange rate is currently high because there is a high demand for AUDs (ignoring the fundamentals of the USD). There is a high demand for AUDs because AUDs need to be purchased to buy what our exporters are exporting (coal, iron ore, whatever). The high demand for our goods means a high demand for AUDs which means a higher AUD price in terms of other currencies.
> 
> The high AUD is not a sign of future economic malais, it is a sign of current economic strength. The RBA (which like all central banks, should not exist) should do precisely nothing except continue to target low inflation by tightening the money supply.




Exporters (non commodity) _are_ closing down, that's the problem. And those that don't export but make goods for the local market are having to compete with ever cheaper imports. I was looking for a lounge recently - there is just no comparison - Chinese imports are substantially cheaper, or at least, even cheaper than usual. How can the local manufacturer compete with that?

Demand for currency to pay for commodities plays a part, but by far the greatest influence on the level is as a direct counter trade to the $USD, as per the chart below, which shows a very high correlation. How else can the very large daily fluctuations be explained?

Every other country, in this climate, wants a low exchange rate to bolster local industry, and their CB's comply for that outcome by intervention, either directly or QE etc.

At the current level (and higher) it _will_ be 'a sign of future economic malais' as one by one local manufacturing and producers get swamped by cheap imports. It will happen - it's already happening.






> Investors are becoming increasingly worried about the impacts of the AUD on Australian corporate earnings.
> Given another strong US session overnight, the magnitude of today’s falls is somewhat surprising. While it’s been talked about for couple of weeks, it seems the strength of the AUD is now starting to bite. This is particularly relevant in terms of profit expectations for Australian corporate earnings, and by effect, the performance of the broader equity market.


----------



## Smurf1976 (29 April 2011)

prawn_86 said:


> Its just a basic carry trade. Problem comes when they need to take the funds back home if the rates have changed.
> 
> Same thing happened with the AUD/CHF back in the early 90's



Agreed. The only reason I mention it is because I've seen various reports from the US referring to the rise of the AUD in precisely this context as though it were common knowledge that there is an active carry trade involving USD and AUD.


----------



## Smurf1976 (29 April 2011)

Uncle Festivus said:


> At the current level (and higher) it _will_ be 'a sign of future economic malais' as one by one local manufacturing and producers get swamped by cheap imports. It will happen - it's already happening.



Agreed. Apart from mining, Australian industry faces being virtually wiped out by this situation. Even the mineral processors don't like it and it's the same with things like tourism too.


----------



## tothemax6 (29 April 2011)

Uncle Festivus said:


> Exporters (non commodity) _are_ closing down, that's the problem. And those that don't export but make goods for the local market are having to compete with ever cheaper imports. I was looking for a lounge recently - there is just no comparison - Chinese imports are substantially cheaper, or at least, even cheaper than usual. How can the local manufacturer compete with that?
> 
> Every other country, in this climate, wants a low exchange rate to bolster local industry, and their CB's comply for that outcome by intervention, either directly or QE etc.
> 
> At the current level (and higher) it _will_ be 'a sign of future economic malais' as one by one local manufacturing and producers get swamped by cheap imports. It will happen - it's already happening.



Sure, I can believe that non-commodity exporters are closing down. I didn't even know we had much in the way of these types of exporters. Why should Australia be allocating its capital and labour into low yield ventures, when much higher yield can be obtained by focusing on our highest-yielding ventures? Would you rather have your money in an investment yielding 20% or 5%? For the same reason you choose 20%, Australian's choose to invest more in mining that manufacture - Australia is internationally uncompetitive in manufacture, but competitive in mining.

If China's imports are cheap, how is that a bad thing? Cheap consumer goods are great - consumption is the end goal of production after all.

If foreign nations wish to spew money, increasing the value of our money and subsidizing their exports to us, why should we complain? For example, when China stockpiles US bonds in its central bank as it prevents the yuan appreciating, this is money that has been denied the Chinese citizens in exchange for their exports. Who is really better off, those chinese exporting cheap goods in exchange for little, or those americans who buy those goods - and end up having to provide nothing in return?


----------



## Uncle Festivus (29 April 2011)

The problem is, it's not sustainable in the long term. China has $3T in freshly minted $USD's looking for a good home ie inflation. So when the crunch time comes ie a re-balancing of the global financial system aka GFC2, or sometjhing less inocuous as a hard landing in china after cooling attempts fail, we as a country won't have anything to offer the world, nor have the ability to make it outselves because it had long ago been out-sourced to the cheapest labour country. 

So with a commodity boom in full swing, the $AU is negating any benefits, as shown by the following charts -


----------



## TulipFX (29 April 2011)

When a country has things which are in demand, the currency rises - increasing their price.

When a country has things which aren't in demand, the currency falls - decreasing their price.

It is why we have exchange rates. The act as a balancing factor. Both rewarding countries when their products are in demand and helping them when they are not.


----------



## Julia (29 April 2011)

Tulip, thank you for succinct explanation.  So should we expect eg the SP of the big miners to continue to be thrashed as long as the $A remains high?


----------



## Uncle Festivus (30 April 2011)

TulipFX said:


> When a country has things which are in demand, the currency rises - increasing their price.
> 
> When a country has things which aren't in demand, the currency falls - decreasing their price.
> 
> It is why we have exchange rates. The act as a balancing factor. Both rewarding countries when their products are in demand and helping them when they are not.




Nice in theory. What reward are we getting? All the benefits get negated as per Julias' bit about miners sp's?


----------



## tothemax6 (30 April 2011)

Uncle Festivus said:


> The problem is, it's not sustainable in the long term. China has $3T in freshly minted $USD's looking for a good home ie inflation. So when the crunch time comes ie a re-balancing of the global financial system aka GFC2, or sometjhing less inocuous as a hard landing in china after cooling attempts fail, we as a country won't have anything to offer the world, nor have the ability to make it outselves because it had long ago been out-sourced to the cheapest labour country.



It certainly isn't sustainable, I agree. Where is all of this iron ore and coal going? The Chinese are constructing like its about to be outlawed. It is a frenzy, and it _will_ crash. When it does, or if there is any other calamity, the AUD will plummet, our prices (including labour) become cheaper in global terms. The economy has a habit of balancing itself like this.
The thing is, whatever happens nothing can actually be done about it on the macro level. Its just how it is. People just need to be prudent and maintain a high savings rate.
The RBA fiddling with things will do no better than the US, UK or (especially) the Japanese central bank did by fiddling with things.


----------



## Uncle Festivus (30 April 2011)

tothemax6 said:


> It certainly isn't sustainable, I agree. Where is all of this iron ore and coal going? The Chinese are constructing like its about to be outlawed. It is a frenzy, and it _will_ crash. When it does, or if there is any other calamity, the AUD will plummet, our prices (including labour) become cheaper in global terms. The economy has a habit of balancing itself like this.
> The thing is, whatever happens nothing can actually be done about it on the macro level. Its just how it is. People just need to be prudent and maintain a high savings rate.
> The RBA fiddling with things will do no better than the US, UK or (especially) the Japanese central bank did by fiddling with things.




Actually I think the seeds were sown for the GFC many years ago with the Yen carry trade looking for yield and finding it in global real estate, and it looks like they are doing it again thanks to their natural disasters?


----------



## tothemax6 (30 April 2011)

Uncle Festivus said:


> Actually I think the seeds were sown for the GFC many years ago with the Yen carry trade looking for yield and finding it in global real estate, and it looks like they are doing it again thanks to their natural disasters?



I don't know about that, the yen is now just one of many currencies with minuscule cash rates.
Regarding the GFC, the economics were fairly straight-forward. The US central bank lowered interest rates to 1% following the tech crash. Credit expansion took off, and the central bank made no real effort to arrest the credit expansion. On top of that, the US had government backed agencies (Fannie Mae and Freddie Mac) which were mandated to make housing loans available to those who couldn't afford them. Hence a huge bubble inflated in the housing market. It is no surprise that the GFC started with a collapse in the sub-prime mortgage market.


----------



## TulipFX (30 April 2011)

Julia said:


> Tulip, thank you for succinct explanation.  So should we expect eg the SP of the big miners to continue to be thrashed as long as the $A remains high?




I don't know.

Remember that the stock prices are quoted in AUD. It is like how commodities are quoted in USD. A fall in the USD raises commodity price caeteris paribus. Similarly a rise in the AUD is likely to see a fall in an Australian stock price caeteris paribus.

The AUDUSD rises 5%. If the stock price remains unchanged, looking from an USD perspective the price of that stock has risen 5% - even if its quoted AUD price has not moved.

There has been talk over the past couple of years that the Chinese have been stock piling commodities as a hedge against a falling USD - of which they hold a lot of through their purchasing of US Govt Securities.


----------



## tayser (30 April 2011)

tothemax6 said:


> The exchange rate is currently high because there is a high demand for AUDs (ignoring the fundamentals of the USD). There is a high demand for AUDs because AUDs need to be purchased to buy what our exporters are exporting (coal, iron ore, whatever).




Coal, Iron Ore, whatever is invariably priced and paid for in USD, not AUD.  The BHPs, RIOs, Woodsides are whinging cos their profits (That they have to report in AUD) are eroding as their income is in USD.



			
				tothemax6 said:
			
		

> The high AUD is not a sign of future economic malais, it is a sign of current economic strength. The RBA (which like all central banks, should not exist) should do precisely nothing except continue to target low inflation by tightening the money supply.




agreed.



			
				tothemax6 said:
			
		

> If a central bank wishes to play with the exchange rate of its currency, it simply buys or sells its currency directly on the foreign-exchange market.
> Exactly the same effect as selling a bunch of shares causing the share price to go down.




The RBA has intervened on occassion: http://www.rba.gov.au/mkt-operations/foreign-exchg-mkt.html#eight and profited handsomely too.


----------



## Uncle Festivus (30 April 2011)

I'm still not seeing the commodity supply/demand metric being exerted on the $AU/$US pair at least - very much a counter to the $USD or DX, as per another chart view below. Correlated with the Dow no less, & negative correlation with the DX.....ie more technical risk trade momentum (same as gold, oil etc) than people buying because we have things in demand?


----------



## Aussiejeff (30 April 2011)

All this media concern about AUD v USD.

Maybe there should be some media concern about the Yuan v AUD - since the Wizards of Oz (various gummint financial sorcerers) appear to be pinning almost their entire future prospects on what the CHINESE can afford to buy from us?

The 18.4% ave loss of Yuan purchasing power for Oz goods & services since June last year must surely be having a significant impact on our economy at the moment - with even worse exchange disparity to come? Hell, there has been an 11% drop in Yuan v AUD since mid-March alone! 

Given the inevitable lag in financial stats from "the authorities", this will surely mean a big squeeze on Chinese investment here across the board in the short & medium terms? Less inclined to travel here, buy ANYTHING from here? Hm.....


----------



## Uncle Festivus (30 April 2011)

Aussiejeff said:


> Given the inevitable lag in financial stats from "the authorities", this will surely mean a big squeeze on Chinese investment here across the board in the short & medium terms? Less inclined to travel here, buy ANYTHING from here? Hm.....




Yes, very interesting, all the different FX dynamics. Mmmmmm.....now did that just happen to co-incide with a softening real estate market here?


----------



## joea (30 April 2011)

Forget about mining ,it keeps coming out of the ground.

The tourism industry on the east coast of Australia is "gutted".

If you are running a country, you combine the best mix for the economy.
Obviously that has not sunk in yet!! We do not have 2 years for it to sink in.
They are very slow!!! We do not have 6 months!!!
Cheers


----------



## Paulo30 (30 April 2011)

This Fed gov is totally reactive driven, living for today only. It will be interesting to see what reactive measures come out in next week's Budget.. esp around housing, increasing debt levels, etc.

PS- Besides tourism, the retail industry is also up #*$& creek well and truly.



joea said:


> Forget about mining ,it keeps coming out of the ground.
> 
> The tourism industry on the east coast of Australia is "gutted".
> 
> ...


----------



## Smurf1976 (30 April 2011)

joea said:


> Forget about mining ,it keeps coming out of the ground.
> 
> The tourism industry on the east coast of Australia is "gutted".
> 
> ...



I think the real issue here is that whenever the mining boom ends, we're going to be hit _very_ hard given that so many other industries are being vitually destroyed.

As anyone who has managed any diversified portfolio (of anything, not necessarily investments) will tell you, when you have rising total output due to one or two components whilst everything else is in decline then that's most certainly not a good sign. 

Shares, farms, water in dams, workers, whatever - it's never a good sign when most components are declining but the effect is masked by overall growth due to one or two strong performers. At best, you know you've got something that has become inherently unstable and at serious risk of a major decline should the one or two strong components fail (and sooner or later they usually do...).

It's a bit like being on an aircraft with 4 engines knowing that 2 have seized up completely and another is having problems. Technically, it's still a flying plane and may well land safely but nobody from the captain through to ordinary passengers is going to be too happy with such a situation since the risk is obvious. What's happening to the Australian economic, particularly exports, is akin to this situation. Better hope that last engine doesn't fail...


----------



## TulipFX (30 April 2011)

At the moment the world is demanding commodities. The exchange rate is helping Australia's comparative advantage in mineral production.



> The law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies.
> 
> http://en.wikipedia.org/wiki/Comparative_advantage




There is no 'good' or 'bad' about exchange rates. Just like there is no 'good' or 'bad' about current and capital account balances. It just 'is'.


----------



## tothemax6 (1 May 2011)

joea said:


> Forget about mining ,it keeps coming out of the ground.
> The tourism industry on the east coast of Australia is "gutted".
> If you are running a country, you combine the best mix for the economy.



The trend has been to see the 'economy' as some kind of engine, which the government owns an operates, and needs to 'tweak', 'tune' and 'give a bit of a slam', when required. 
This is a terrible, terrible thing. The economy is simply the collective term for 'people going about their business'. The worst thing that can happen to an economy is command-control, like in the USSR. The government should stick to its real job - cops troops and judges.


TulipFX said:


> There is no 'good' or 'bad' about exchange rates. Just like there is no 'good' or 'bad' about current and capital account balances. It just 'is'.



Well put.
Although I would say that on the individual level, the exchange rate can of course be good or bad, for instance if one is going on holiday.


Smurf1976 said:


> I think the real issue here is that whenever the mining boom ends, we're going to be hit _very_ hard given that so many other industries are being vitually destroyed.



But there is nothing that can be done about this. Any government interference invariably causes more damage than they claim it will improve. For instance, the government could choose to tax the miners more, and then throw the money at various boondoggle projects. This would merely hurt our income in the booming section of the economy, and create new investments that private citizens have not indicated (through the market) that they need.
The best that can be hoped is that the boom continues for a while longer. When it stops, we will have a recession. Hopefully, when we do, the government will just let it happen. A recession is _precisely_ the time when a nation reorganizes the allocation of resources across its industries to correct imbalances. The worst thing that could happen is if when the boom ends, we have a bunch of keynesians and socialists in charge, and we get a 1929 recession instead of a 1920 recession.


----------



## Smurf1976 (1 May 2011)

tothemax6 said:


> But there is nothing that can be done about this. Any government interference invariably causes more damage than they claim it will improve. For instance, the government could choose to tax the miners more, and then throw the money at various boondoggle projects.



I follow your argument but there must be some reason why just about every other government is protecting domestic industries in one way or another?

I'm not against the so-called "level playing field" but the reality is that practically every other significant country is at least trying to tilt it in their favour, with Australia being one of the few that isn't doing so.


----------



## tothemax6 (1 May 2011)

Smurf1976 said:


> I'm not against the so-called "level playing field" but the reality is that practically every other significant country is at least trying to tilt it in their favour, with Australia being one of the few that isn't doing so.



Sure, other countries do have interfering governments, but I wouldn't say this tilts things in their favour. Take China for instance: people have been forever that the currency interference 'helps china because it boosts exports'. In reality, the Chinese citizens are just getting jipped. Instead of being able to buy cheaper imports, or to enjoy the products they make themselves, all that happens is a bunch of US gov bonds pile up on the floor of the PBOC. The US effectively gets subsidized cheap imported products and doesn't have to pay China for them. And China just ends up with market distortions that will hurt it down the road.


----------



## Uncle Festivus (1 June 2011)

Looks like we are just 12 weeks away from a technical recession, although a lot of people & busininesses will say it's already here? And the boofhead economists still talk about interest rate rises!



> Australian manufacturing activity contracted in May for the third  consecutive month, dragged down by weak domestic demand, cheap imports  and the strong Australian dollar, a survey shows.
> The local currency stayed above 104.50 US cents for the  whole of May, hitting a post-float record high of 110.11 US cents on May  3.
> The Australian Industry Group/PriceWaterhouseCoopers  Australian Performance of Manufacturing Index (PMI) fell 0.7 points in  May to 47.7.
> 
> Readings below 50 indicate contraction in activity.



http://www.theage.com.au/business/strong-dollar-dents-factory-output-20110601-1fg0v.html



> Figures out today confirmed the slowdown that's been signalled since  January when much of Queensland was under water and the big coalmines  and other pits stopped shipping commodities to the hungry markets of  Asia.
> 
> The economy shrank 1.2 per cent in the first three months  of the year, the first negative result since the December quarter of  2008 when the world was emerging from the global financial crisis.
> The March quarter contraction is the largest since the first three months of 1991 - the last time Australia endured a recession.




Read more: http://www.theage.com.au/business/national-economy-shrinks-12-20110601-1ffjw.html#ixzz1O0Qy7Xby
​


----------



## Aussiejeff (2 June 2011)

Uncle Festivus said:


> Looks like we are just 12 weeks away from a technical recession, although a lot of people & busininesses will say it's already here? And the boofhead economists still talk about interest rate rises!
> 
> http://www.theage.com.au/business/strong-dollar-dents-factory-output-20110601-1fg0v.html
> 
> ...




Yeah, all this "Oh, what a surprise - the data is "worse than expected"" crap from "expert" so-called economists (many with bullish vested interests in keeping the champagne bubbles from popping) ... cracks me up.

Many obviously couldn't see the GFC coming, nor could many apparently foresee this ongoing "worse than expected" data coming along either!

So how the hell can they STILL predict "Oh, the economy is growing strongly - there will be much better times ahead - explicit to nth% growth points, to be precise" based on the evidence of their _pathetic_ forecasting to date?

Laughable in the extreme. The puppet media falls for it every time.


----------



## Paulo30 (2 June 2011)

Economy slumps, but rates unlikely to follow suit.. 

http://www.smh.com.au/business/economy-slumps-but-rates-unlikely-to-follow-suit-20110602-1fh5j.html


----------



## Uncle Festivus (7 February 2012)

Meanwhile, the retail & manufacturing recession gets worse..........



> The latest ABS Retail Trade figures show that Australian retail turnover fell 0.1% in December 2011




But, things aren't so bad afterall......good for savers at least?



> Australia’s central bank unexpectedly kept its benchmark interest rate unchanged as it assesses the effect on the nation’s economy of its two previous cuts.
> Governor Glenn Stevens and his board left the overnight cash-rate target at 4.25 percent, the Reserve Bank of Australia said in a statement in Sydney today. The decision was predicted by three of 27 economists surveyed by Bloomberg News. The other 24 forecast a quarter percentage-point reduction.



Points to the number crunchers at ANZ this time - do they actually pay economists to get it wrong repeatedly?




> “The global risks are a little lower than at the time of the December rate cut,” Australia & New Zealand Banking Group Ltd. economists Craig Michaels and Katie Dean, who predicted a pause, said in a research report before today’s decision.



More jobs gone - must be bad, from the ;Millionaires Factory' of all places??




> MACQUARIE Group has flagged job cuts of around 10 per cent at  its investment banking arm as it foreshadows a significant decline in  full-year profit.



So that's retail, manufacturing and finance in or going into recession? Keep going Glen (an economist no doubt), you want to hope that China keeps doing all your hard work for you?


----------



## notting (7 February 2012)

Their not leaving much for the rest of the country!
Not even the miners benefit from this.
So we sell all our resources, which is about all we're good for, for less.  Then one day try to survive with butchered retail, tourism and pretty much everything including international investment in shares etc.
:dunno: They must really believe in Euroland! Maybe that's a positive!


----------



## Julia (7 February 2012)

So much for the learned views of economists.  Katie Dean from ANZ was the only one I heard suggesting there wouldn't be a cut.

I wish all these talking heads would just shut up.  Their endless ruminations on "will the Reserve cut or won't it?" are pointless and they're wrong more often than they're correct.


----------



## DocK (7 February 2012)

Julia said:


> So much for the learned views of economists.  Katie Dean from ANZ was the only one I heard suggesting there wouldn't be a cut.
> 
> I wish all these talking heads would just shut up.  Their endless ruminations on "will the Reserve cut or won't it?" are pointless and they're wrong more often than they're correct.




Can't remember exactly who it was on YMYC on Sky the other night - Gary Stone and Howard from Team Invest I think - but they both said that they felt there _should_ be a rate reduction, but felt that the RBA would be "keeping its powder dry" for the moment.  So that's at least another couple who got it right.


----------



## notting (7 February 2012)

There Reserve is very focussed on the cost of houses.
The talking heads are all on about the patchwork economy.  I don't know why they rarely mention the cost of a house, especially given it seems to be the main thing that moves the reserves hand! 
The reserve seems to have had an agenda to bring that down regardless of what ever els it brings down with it! Why bring the rate down when the banks were not going to pass it on anyway!?
Probably won't find that in their notes!!!
"OK banks, not going to play ball? - suck on this!!"
And besides - A hut in WA still sets you back about 600K!
I'd like to see the banks all raise rates a little now in response, that would be funny. The audacity of them!!


----------



## Dowdy (7 February 2012)

Why is everyone iffy about a high AU dollar?

I think there is nothing wrong with it and the only industries that are struggling are ones that don't want to innovate and blame the AU dollar for their problems


----------



## Smurf1976 (7 February 2012)

Dowdy said:


> Why is everyone iffy about a high AU dollar?
> 
> I think there is nothing wrong with it and the only industries that are struggling are ones that don't want to innovate and blame the AU dollar for their problems



How does one successfully "innovate" when you are stuck with input costs (notably labour and increasingly electricity) that are higher than your competitors?

The only real approach would seem to be that of sacking workers or finding some way to pay them less and also finding ways to use less electricity. The latter is an option for some industries (but not the big power users like smelting) but you don't have much chance of underpaying the workers. And if there was a way to operate with a lot less staff then I think that foreign competitors have probably worked that one out also...

Suppose that I was planning a holiday in Perth. OK so far, but I may just as well fly overseas instead. Comparable costs overall, many more attractions. The same applies to most domestic holidays unless you specifically want to go to that location or there is some event that you are attending etc. Other than that, OS has simply become a cheaper option in many cases.


----------

