Australia commodity index hits record high in Nov – RBA

Australia commodity index hits record high in Nov – RBA

 SYDNEY, Dec 1 (Reuters) – The Reserve Bank of Australia’s (RBA) index of commodity prices rose 0.9 percent in November, from October, to reach a fresh record high in a favourable omen for export earnings.

 The index was up 44 percent in special drawing right (SDR) terms, compared to November last year. The index reading of 121.3 surpassed the August peak of 121.1.

 In Australian dollar terms the index fell by 0.5 percent in November, but was up 31 percent for the year. The index also hit a record high in U.S. dollar terms, to be up 41 percent on November last year.

 Much of the rise in the past year reflected huge price increases for iron ore and coal, Australia’s two biggest export earners. That has boosted Australia’s terms of trade, lifting profits, investment, employment and tax receipts.

– Thomson Reuters –

More rate rises on the cards, says OECD

More rate rises on the cards, says OECD

* Australia’s recovery ‘will need further rate rises’
* ‘Mining boom is fuelling economic recovery’
* OECD report forecasts economic growth

AUSTRALIA’S strong recovery from the global economic downturn, fuelled by the mining boom, means the Reserve Bank of Australia (RBA) will have to continue to raise its official cash rate, the Organisation for Economic Cooperation and Development (OECD) says.

The OECD also said the global recovery has become more hesitant, but low interest rates in many countries suggest this “soft patch” is unlikely to persist for too long.

In its semi-annual Economic Outlook report, released overnight, the OECD said Australia’s projected growth was likely to require a further tightening of monetary conditions to ensure that a non-inflationary recovery remained on track.

The OECD is forecasting Australian economic growth at 3.6 per cent in 2011 and 4.0 per cent in 2012, after 3.3 per cent in 2010.

“OECD projections include further tightening of monetary policy to moderate demand pressures and rein in the level of inflation, which is relatively high at the beginning of the cycle,” the Paris-based institution said

The RBA’s increase in the cash rate this month to 4.75 per cent was the seventh rise since October 2009.

The OECD expects inflation to remain near the top of end the RBA’s two to three per cent target band – 2.8 per cent in 2011 and 2.9 per cent in 2012.

More broadly among the 33 OECD countries, growth is forecast to expand by 2.3 per cent next year and 2.8 per cent in 2012, with inflation at a subdued 1.5 per cent and 1.4 per cent, respectively.

“The global recovery is continuing to recover, but progress has become more hesitant,” the think tank said.

“With monetary policies remaining accommodative even as fiscal consolidation becomes widespread, the present soft patch in output growth is not projected to persist for long.”

Australia’s unemployment rate is expected to fall below five per cent after mid-2011 and to 4.7 per cent in 2012, compared with 5.4 per cent as of October this year.

This is well below the expected OECD average of 8.1 per cent next year and 7.5 per cent the following year

The OECD said increased business investment should be the main engine room of Australian economic growth.

“The strength of demand from major Asian countries and the terms of trade will favour the mining sector, whose expansion should have a knock-on effect on the rest of the economy,” the OECD said.

“These developments will probably compensate for weaker (government) demand and stimulate job creation, which should support household incomes and consumption.”

The OECD said this positive outlook, associated with the development of China, could boost confidence and produce even stronger than expected growth in domestic demand.

“However, this scenario might also be adversely affected by renewed financial turbulence in the OECD area or by an unexpected slowdown in the Chinese economy,” it said.

As in a more in-depth analysis of Australia by the OECD released last Sunday, the latest report urged reforms in the housing and infrastructure sectors to reduce bottlenecks that the mining boom was likely to exacerbate

SOURCE: http://www.news.com.au/business/

Australian Dollar Pullback Will Be Buying Opportunity, ING Says

Australian Dollar Pullback Will Be Buying Opportunity, ING Says

 

Australia’s dollar may fall to the low 90 U.S. cent level if the Federal Reserve disappoints investors looking for extra monetary stimulus, presenting an opportunity to buy the Aussie, ING Investment Management said.

A decline in Australia’s currency will enable investors to “reset” wagers on its longer-term appreciation, said Mark Robertson, a senior portfolio manager at the unit of the biggest Dutch financial services company. Fed policy makers will announce roughly $500 billion of Treasury purchases at their next meeting on Nov. 2-3, and indicate they are ready to buy more, Goldman Sachs Group Inc. said last week.

“There is a lot of expectation built into what the Fed’s going to do so it wouldn’t be surprising to see some near-term U.S. dollar strength on perhaps a winding back of some of those expectations,” said Robertson, who helps oversee the equivalent of $19 billion as part of a multi-strategies group in Sydney. A pullback in the Aussie “would be an opportunity to reset the portfolio with a little more Aussie dollar exposure,” he said.

ING Investment has been “overweight” the Australian currency since August, said Robertson, who forecasts it may strengthen to $1.10 over the next 12 to 18 months.

The Australian dollar, which briefly rose above parity with the U.S. dollar on Oct. 15, traded at 97.11 U.S. cents as of 11:35 a.m. in Sydney from 96.86 cents in New York yesterday. The currency has gained 9.9 percent in the past three months.

Fed Purchases

The U.S. dollar has dropped against all 16 of its most- traded counterparts in the past quarter amid mounting speculation the Fed will expand a program to purchase Treasuries. The central bank completed purchases of about $1.7 trillion of U.S. debt in March.

Chicago Fed President Charles Evans said yesterday the central bank will need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily. Additional Treasury purchases can lower long-term interest rates, he said.

“There’s still going to be a very large and sustained increase in the amount of U.S. dollars in circulation, which has to be Aussie dollar positive,” Robertson said. “The Aussie is a bit like the price of gold, you don’t know how high it’s going to go but you just know it’s going higher.”

Gold rose to a record $1,387.35 an ounce on Oct. 14. The metal will average $1,400 next year, UBS AG analysts wrote in a report Oct. 18, increasing their forecast from $1,295.

China Rates

Australia’s dollar slid the most since June yesterday after China unexpectedly raised interest rates, sparking concern slowing growth in the Asian nation will damp demand for commodities. Australia, which is the largest shipper of iron ore and coal, counts China as its biggest trading partner.

“The rate hike will no doubt be a short-term negative for local and regional equity markets as it was slightly unexpected,” Robertson said. “The intentions behind the move should be seen as supportive of sustainable growth for China over the long term.”

Robertson forecasts that Australia’s benchmark interest rates will rise toward 5 and 5.5 percent over the next 12 months. Governor Glenn Stevens raised the key rate six times beginning October 2009 before beginning a five-month pause in June.

Analyst picks long-term strength

AMP Capital Investors chief economist Shane Oliver says while the Australian dollar is vulnerable to a correction, after rising so quickly since August, it is likely to hold around the parity level for the “next few years”, due to the strength of the economy and strong commodity prices.

“While the high $A will make life tough for trade exposed companies without a natural hedge, on balance it is more of a positive for the Australian economy. It is unambiguously positive for consumers and will help limit the extent to which interest rates have to rise,” Mr Oliver said.

Charts suggest the local currency could rise as high as $US1.0236 in coming weeks, the 161.8 per cent Fibonacci projection level of the currency’s fall between November 2009 and May 2010.

The Australian dollar has been the strongest major currency since the country skirted through the global financial crisis without falling into recession. In fact, its economy picked up steam, and the currency has surged 66 per cent since touching a low of $US0.6007 in October 2008.

Unlike other countries griping about excessive currency strength against a sliding dollar, Australia’s central bank has considered a stronger currency a natural outcome of the country’s booming resources trade and a tool for fighting inflation.

Travellers uncertain

Travellers at Sydney International Airport, who were heading on holidays on Saturday afternoon and those returning home to the US, expressed their surprise, delight and indifference to AAP.

Friends Helen Foulis and Debra Thorsen – who were flying to San Francisco, Las Vegas and New York for a two-week break – said the strong Aussie dollar was encouraging for their shopping trips.

“The shopping trips are going to be mega,” Ms Foulis said.

“Same for me, I’m going shopping for clothes, shoes, jeans,” Ms Thorsen said.

Christine Chong, who planned to visit friends and family in Los Angles, said the historic parity didn’t make much of a different to her.

“If you’re going to travel, you’ll travel,” she said.

“I don’t spend much anyway so it doesn’t make a difference.”

American business traveller Chris Phipps said the two currencies had been close for a long time.

“Being parity is like being at home and I’m going to spend the normal way,” he said.