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On the eve of the Reserve Bank board meeting, the Australian dollar hit a new high yesterday.
It touched $US1.1011, the highest since the float started back in 1983 and the highest overall since the managed float before then when it hit 110 US cents in December 1981.
It then fell back under the 110 US cent level and stayed there after the news Osama Bin laden had been killed.
It traded around $US1.0940 in New York this morning as the uS dollar fell to a new 16 month low against the euro of $US1.48.
Remember the major factor why the Aussie has been so strong this year up over 6% in the past month alone, is the weakness in the value of the US dollar, especially against the euro which continues to climb.
The Aussie’s continuing ascent came as Moody’s affirmed the top rating for Australia’s government at AAA, enabling the country to remain as one of only 17 AAA-rated economies in the world.
Moody’s said the outlook for Australia’s Aaa ratings remains stable, based on the country’s very high economic resiliency, very high government financial strength, and very low susceptibility to event risk.
"In particular, the framework for fiscal policy is transparent and has, until now, consistently kept government debt at low levels," the agency said in a statement.
Moody’s said that though the risks to Australia’s rating were very low, one vulnerability was the dependence of the economy and Australia’s banks on foreign funding, more so than in most other advanced economies.
"The large size of the country’s negative net international investment position is a vulnerability in times of global financial market stress," it said.
Moody’s said the low level of government debt meant the Labor government had time to return the budget to surplus, having run up a big deficit in the wake of the global financial crisis.
The government delivers its annual budget next week and is committed to returning the budget to surplus by 2012-13.
"Whether it reaches a balanced position in 2012-13 — as targeted by the government — or somewhat later is not important as long as the improving trend is in place," added Moody’s.
"Because of its low debt levels, the government has some leeway in this regard."
Moody’s expects Australia’s economy to grow 3.5% this year, up from 2.6% in 2010, thanks in part to strong Asian demand for the country’s commodity exports.
Ahead of the RBA’s consideration of interest rates tomorrow, the TD Securities-Melbourne Institute monthly inflation guide showed a small improvement in April compared with March.
The survey showed a 0.3% rise in consumer prices last month, half the 0.6% rise in March and just above the 0.2% rate in February.
That gave an annual rate of 3.6% in April, compared with the 3.8% rate in March.
The survey showed that higher prices for health services, overseas holiday travel and accommodation prices, and a small rise in automotive fuel were mainly behind the April increase.
And the dollar’s rise continues to restrain manufacturing.
The Australian Industry Group/PriceWaterhouseCoopers Australian Performance of Manufacturing Index (PMI) rose just 0.5 points in April to 48.4.
Readings below 50 indicate contraction in activity, making April the second contraction in a row.
Seven of the 12 manufacturing sub-sectors posted declines in activity for the month.
PwC global head of industrial manufacturing Graeme Billings said the strength of the Australian dollar was hitting manufacturers hard.
"Manufacturers are facing a most testing environment due to the strength of the exchange rate and consumer caution," Mr Billings said.
"It is imperative for businesses to maintain the search for new opportunities, new markets, new product lines and new sources of industrial efficiency."
New orders fell again in April, down 2.7 points at 46.4.
Seasonally adjusted, the production sub-index rose 2.4 points to 53.3 indicating an expansion in activity.
The states to record an expansion in manufacturing activity were NSW, South Australia and Tasmania.
The Reserve Bank said yesterday afternoon that preliminary estimates for April indicate its Commodity Price Index rose by 7.6% in April in terms of Special Drawing Rights (or SDRs, a form of super currency used by the IMF).
That was after rising by 0.8% in March (revised).
The largest contributors to the rise in April were increases in the estimated export prices of coking coal and iron ore, reflecting the movement to higher contract prices in the June quarter.
The estimated export price of thermal coal as well as crude oil and gold prices also rose notably in the month, while sugar and cotton prices fell. In Australian dollar terms, the index rose by 3.8% in April.
Over the past year, the index has risen by 32% in SDR terms.
The RBA said that much of this rise has been due to increases in iron ore, coking coal and thermal coal export prices.
With the appreciation of the exchange rate over the year, the index rose by 22% in Australian dollar terms.
