THE RISE AND RISE OF THE AUSSIE DOLLAR
The Reserve Bank has made it clear that the $A is much too high for their liking and I agree with them. A price of around 70 US cents would make our exports much more competitive as well as encourage more foreign investment. The Reserve Bank cut interest rates twice in attempt to bring the $A down but it has not worked and the question is why?
One theory is that overseas investors are banking on yet another rate cut later in the year. As a result, they are jumping out of trees to invest in medium term Australian bonds now as these will become much more valuable when rates fall. As a result the huge volumes of investment into Australian cash and bonds has had an inverse effect on the $A causing it to rise. Couple this with negative bond rates in Europe and zero percent rates in the US and Australia has become a great place to invest. The good news is that this anomaly in the market will not last and markets naturally correct. With a strengthening $US and another rate cut, surely we have seen the $A reach its peak. If so, it’s very close.
In a very cheeky move, Chairman of the RBA Glenn Stevens kept rates on hold at his last meeting as Chairman, and with the $A so high on his watch, what does he do? Organise a long term trip to the US with his family of course!!!
Overall it has been a great start to the financial year and in fact the calendar year despite a high Aussie dollar. Local and global markets have spiked and most fund managers are recording near double digit returns for the year to date. With the $A surely to fall over the coming months I expect strong returns for global funds and solid returns domestically.