fiscal stimulus would help Australia avoid recession

Foreign Exchange - Australian Dollar Outlook :

The Australian Dollar was firm yesterday, rising off the early low of 6245 to an intraday high of 6357 on expectations of a rate cut and stimulus plan to be annoucned overnight. We expected a "buy on the rumor" effect and got it to a high of 6421 (or a 38% retracement of the previous downmove). But then the "sell on the news" effect kicked in, and the A$ sank back to 6334. The move may not be over now that the US dollar is in an overall corrective mode. We imagine the corrective move could reach as high as 6550 before it fizzles out. This is the channel top on the hourly chart and near the 62% retracement. But probably more important is the Australian Dollar vs Japanese Yen, which we don’t usually follow. It got a minor bit of support from
the announcement but its still headed for a test of the lowest-ever low of 55.08 from last October.

The hard news is that the Reserve Bank cut rates by a full 1% to 3.25%, the lowest since 1964, and announced a new stimulus package of A$42 billion, to be focussed on infrastructure with some payments to consumers. Bloomberg says the packkage includes A$12.7 billion in grants to families and low-income earners and A$28.8 billion for infrastructure. It will help send the nation’s budget into an A$22.5 billion deficit, the first shortfall since fiscal 2001-02. The earlier Oct stimulus of about AUD $ 10 billion went mostly to low-income sectors like pensioners.

Treasurer Swan said “The weight of the global recession is now bearing down on the Australian economy. Economic growth is slowing and employment will weaken.” Unemployment will probably rise from 4.5% in Dec to 7% by the middle of next year, and growth will be lucky to hit 1% at the end of the fiscla year in June. The FT reports “Mr Swan said the fiscal stimulus would help Australia avoid recession by boosting growth by 0.5 per cent in 2008-09, rising to 0.75 to 1 per cent the following year. The International Monetary Fund at the weekend forecast Australia’s economy would contract by 0.2 per cent in calendar 2009.”

Bye For Now

Barbara Rockefeller
Forex Trading Reports

Pounds to Australian Dollars exchange rate currently 2.2250

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The Australian Dollar hit a 25-year high of 98.49¢ in July and has since plunged 34%.

Foreign Exchange - Australian Dollar Outlook

After the Reserve Bank of New Zealand cut rates by a mind-blowing 150 bp, the NZ
dollar exchange rate fell dramatically by over 5%. Some Foreign Exchange analysts say the Australian dollar is next, with the Reserve Bank meeting next Tuesday (Feb 3) and probably cutting rates by 1% to 3.25%. After that another 1% cut is in store to 2.25%. Bloomberg reports 3.25% would be the lowest cash rate target since targeting began in 1990 and the lowest since 1964. A Standard Chartered foreign exchange analyst predicts the Australian Dollar will fall as much as 15% by end-June or about 60¢, before recovering to 72¢ by year-end.

The Australian Dollar hit a 25-year high of 98.49¢ in July and has since plunged 34%.

Bye For Now

Barbara Rockefeller

Pounds to Australian Dollars exchange rate currently 2.2700

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Australian Rents recorded their highest increase since 1988

Rent price rises at 20-year high
By Milanda Rout ,The Australian, January 29, 2009 12:00am

RENTS have recorded their highest increase since 1988 amid fears the rental crisis will only get worse as the impact of the global recession takes hold.

Latest figures from the Australian Bureau of Statistics show the annual rate of growth in rents across the country has jumped to 8.4 per cent in the year to last month, up 2 per cent from 2007, The Australian reported.

The statistics also reveal the increase in rents has jumped from 5.4 per cent to 8 per cent in Sydney, 11.2 per cent to 12.2 per cent in Perth and 8.6 per cent to 10.1 per cent in Brisbane.

Adelaide also recorded an increase in residential rental growth of 4.7 per cent to 5.4 per cent and Melbourne jumped to 6.6 per cent from 5.4 per cent.

BIS Shrapnel senior economist Jason Anderson said the rental market was only going to get worse as the country's economy faced a possible recession.

Matk Harwood of Canberra He said the roots of the rental crisis before the economic downturn were the significant increase in immigration and high interest rates that left a shortage of about 100,000 houses.

But falling interest rates were yet to have an impact on the rental shortage because construction of much-needed properties had decreased because of worsening economic conditions and higher unemployment. "This means the shortages are going to get worse over the next two years," Mr Anderson said.

"And it will probably put more pressure on the outer suburbs because that is where the cheaper rentals exist."

Mr Anderson said the rental rate increase of 8.4 per cent was well above the average 4 per cent wage increase, which made it even tougher for people facing difficult financial times.

The figures come as the rental vacancy rate decreased in Melbourne to 1.2 per cent last year from 1.6 per cent in 2007.

Read more on this at The Australian.

Pounds to Australian Dollars exchange rate currently 2.1700

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We look forward to seeing the euro exchange rate at 1.2000 before the end of March.

Foreign Exchange Outlook :

Today is the inauguration of Obama and eyes will be glued to the TV most of the day, We didn't get a stock market rally on the Obama Effect and already commentators are warning that expectations are excessive - the guy can't pull a rabbit out of the hat.

The WSJ writes of the recession forecast "The bottom could be postponed if Mr. Obama's stimulus plans are hamstrung or prove ineffective. And improvement won't be lasting until bank balance sheets are repaired, clearing the way for more-normal financial markets."

We think this is exactly right.

All the tax cuts and public works projects cannot restore confidence and repair the economy until the banks are fixed. So far the consensus of opinion is that the Treasury has botched TARP, announcing it would buy toxic assets before finding out what they would cost and needing to withdraw the plan. Still, the US is activist and the US is a very rich country, and so the US dollar is getting the benefit of the doubt so far. We have been calling it the phenomenon of "it’s worse elsewhere." Events of yesterday and today are making that point.

Many commentators are trying to give the appearance of wisdom by saying that the US will have to get inflation and the US will have to face a refusal to buy its massive new paper issuance, and disapproval of giant budget deficits and a wall of debt must be US dollar negative. We say these things may turn out to be true but are not a useful basis on which to place Foreign Exchange market trades today.

It is an orientation or perspective, and not necessarily the right one. What if the US gets inflation and giant deficits but other countries get more inflation and bigger deficits?

Realistically, the folks who will make the judgment are central bank reserve managers, sovereign wealth fund managers and private fund managers like the South Korean pension manager who thinks it's time to sell US dollars. We'd bet $10 that somebody from the South Korean government has that guy out behind the shed right now. The US is the military ally and defender of the country against the Chinese and Russians, and has been since the early 1950's.

It’s not nice to say your defender's paper is junk. We expect a retraction and apology any day now. We saw it when a Japanese finance minister made a threat to withdraw from US dollar reserves back around 1997 or 1998 after a G7 meeting in the US. The poor guy had to break his trip home (in Guam) and issue the apology and retraction.

Conditions are very different with China, the biggest or second biggest buyer of US paper. Foreign Exchange Analysts are already saying that Beijing will be Obama's first stop on the usual foreign trip after the inauguration. In fact, the biggest things Obama can do in the first few weeks are

1. find a way to fix the banking sector without becoming the first “socialist” president
2. fix the housing sector and end foreclosures and
3. talk the holders of US Treasuries to keep holding and to buy more.

This last category includes US citizens as well as the Asians. Health, energy and reversing the damage of last-minute Bush directives are less important. Oddly, Gitmo is not leass important because it’s a symbol of the US as a nation of laws, not of men.

We keep saying that every time "it's worse elsewhere," the US dollar exchange rates benefits.

This will continue to be true until bottom gets hit, and even then, the dollar can benefit on "first-in, first out." We look forward to seeing the euro exchange rate at 1.2000 before the end of March.

Buy for Now

Barbara Rockefeller

Foreign Exchange Trading

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Australian Dollar Exchange Rate Falls

Foreign Exchange - Australian Dollar Currency Update

Yesterday it was obvious on the hourly charts that some currencies had fallen too far, too fast and in too straight a line to keep going without a pause or corrective bounce. The Australian Dollar was the most glaring case, with the euro looking overdone, too. See the Australian Dollar chart. For foreign exchange trading purposes, when we see a corrective bounce coming, we guess a level where it would be safe to go short again. This time it was the previous intraday high of the previous day, or 1.3331. This time the correction went 7 points over that. Having succeeded in the guess one time doesn’t make it a good rule for every situation.

Bye For Now

Barbara Rockefeller

Foreign Exchange Trading

Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!

Buying Dollars? Buy US Dollars at the Best Dollar Rates!

Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

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Time to buy Pounds to New Zealand Dollars?

Buying New Zealand Dollars? Moving to New Zealand?

NZ commodity prices fell for the fifth consecutive month in December in a broad-based slide, a survey by ANZ Bank showed. ANZ's commodity price index fell 7.4% on the previous month, a sharper drop than in November, and was down 24.4% on a year earlier.
Commodity prices falling will be negative with NZ looking to the farming community to prop up a slowing economy.

I like buying GBPNZD - technically a well defined risk reward (target 2.80, stop 2.44) as commodity price fall flows through to the real economy in NZ and we see a dramatic slow down in spending (on a year on year basis) and further increase in unemployment.

This also plays a bounce in GBP from its currently depressed levels.

Buy for now

IMS Foreign Exchange

Reserve Bank of Australia cuts Australian Mortgage Rates 1%

THE Reserve Bank of Australia has slashed interest rates by 100 basis points to 4.25 per cent.

Interest rates are now at a six and a half year low, and more cuts are on the way, economists say. CBA chief economist Michael Blythe said the RBA was likely to cut by a further 50 basis points in February. "It's a brave call to say there aren't any more rate cuts out there but you need more negative data to get large, rapid-fire rate cuts."

Last month the central bank cut interest rates by 75 basis points to 5.25 per cent. This followed on from a huge 100 basis point cut in October, and a 25 basis point reduction in September.

Most economists had tipped a 75 basis point cut today.

Minutes after the decision was announced, a spokesperson for Commonwealth Bank told news.com.au the bank would pass on the full rate cut, effective December 12. National Australian Bank followed suit, announcing it would pass on the full rate cut effective December 12, while Westpac said it would cut rates by 80 basis points. ANZ cut rates by 0.83 of a percentage point, effective December 12.

The central bank will be hoping today's rate cut encourages Australians to pull out their wallets, after data released this morning showed spending remained stagnant, despite recent figures showing that prices have started to fall.

RBA governor Glenn Stevens said although government and central bank stimulus packages had begun to take effect, global financial market sentiment remained "fragile".

"With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term," Mr Stevens said.

"With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall."

Macquarie Group interest rate strategist Rory Robertson said the RBA had, with its latest cut, reversed some six years of monetary policy tightening in just four board meetings.

Economists believe rates still have a way to fall, with some looking for a cash rate of 3.25 per cent next year. It is only the second 100 basis point rate cut since May 1992 - following a 100 basis point cut in October this year. The total 300 basis points worth of cuts since September is also the deepest set of rate cuts since early 1990, when the RBA eased monetary policy ahead of a recession.

Taking into account today's cuts, Australians will head into the Christmas season around $700 a month better off, according to experts.

Full story visit www.news.com.au

Pounds to Australian Dollars is currently 2.3255

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading

Forex Trading Reports - Click for a free trialBuying Euros? Buy Euros at the best euro Rates!Buying Dollars? Buy US Dollars at the Best Dollar Rates!
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