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Aussie dollar surprises market

by Wealth Know How in Commentary & Opinion


The Australian dollar’s strong rally in recent weeks has caught the market by surprise.  It could even push higher – even maybe hitting US$0.85. That’s a big jump when it was just US$0.74 back at the start of June.
 
The strength of the currency reflects some main factors:
 
Like an increasing chance of a rate rise in Australia on the back of economic strength. Saying that, we don’t expect the Reserve Bank of Australia to hike rates soon. Also, global growth continues to be resilient which supports the China story. China has released some unexpectedly upbeat data, which has prompted an increase in the price of industrial metals.
 
Even with weaker-than-expected inflation numbers in Australia the dollar has still been strong.
 
How long the Australian Dollar will be strong for is still to be seen. The Chinese economy may lose some momentum in the second half of the year, which could affect our currency.
 
At the end of the day, it will be the strength of industrial commodities like Oil and Iron Ore which will drive the direction of the Australian dollar.
 
Speaking of oil, the price continues to rally driven by large falls in US crude and gasoline stock, as well as a pick-up in demand. The weakness of the US Dollar against major currencies is also aiding the oil price.
 
Current geo-political risks including issues in Venezuela, the proxy war in Yemen - between Iran & Saudi Arabia - and the problem of North Korea could also add fuel to the rally in the price of oil.
 
Equity markets, however, will remain on a cautious footing as technology stocks retreat and US wage growth softens.
 
The latest sell-off in tech stocks has made for dramatic headlines, comparable with the dot com collapse. However, unlike back then, the key difference is that the recent strength appears to be justified by improved earnings – both actual and projected.   This contrasts with the hype of the dot com era which was based on projected earnings alone
 
Finally, a word on emerging market equities which have continued to rise recently. Despite the gains, valuation levels still appear quite low compared to developed market equities. Further rises in valuations and earnings should help emerging market equities to keep on climbing.  Not necessarily at the pace they have done so far in 2017.

Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.

Published on 01 Aug 17


  • The Australian dollar’s strong rally in recent weeks has caught the market by surprise.  It could even push higher – even maybe hitting US$0.85. That’s a big jump when it was just US$0.74 back at the start of June.
     
    The strength of the currency reflects some main factors:
     
    Like an increasing chance of a rate rise in Australia on the back of economic strength. Saying that, we don’t expect the Reserve Bank of Australia to hike rates soon. Also, global growth continues to be resilient which supports the China story. China has released some unexpectedly upbeat data, which has prompted an increase in the price of industrial metals.
     
    Even with weaker-than-expected inflation numbers in Australia the dollar has still been strong.
     
    How long the Australian Dollar will be strong for is still to be seen. The Chinese economy may lose some momentum in the second half of the year, which could affect our currency.
     
    At the end of the day, it will be the strength of industrial commodities like Oil and Iron Ore which will drive the direction of the Australian dollar.
     
    Speaking of oil, the price continues to rally driven by large falls in US crude and gasoline stock, as well as a pick-up in demand. The weakness of the US Dollar against major currencies is also aiding the oil price.
     
    Current geo-political risks including issues in Venezuela, the proxy war in Yemen - between Iran & Saudi Arabia - and the problem of North Korea could also add fuel to the rally in the price of oil.
     
    Equity markets, however, will remain on a cautious footing as technology stocks retreat and US wage growth softens.
     
    The latest sell-off in tech stocks has made for dramatic headlines, comparable with the dot com collapse. However, unlike back then, the key difference is that the recent strength appears to be justified by improved earnings – both actual and projected.   This contrasts with the hype of the dot com era which was based on projected earnings alone
     
    Finally, a word on emerging market equities which have continued to rise recently. Despite the gains, valuation levels still appear quite low compared to developed market equities. Further rises in valuations and earnings should help emerging market equities to keep on climbing.  Not necessarily at the pace they have done so far in 2017.

    Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.

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