The Aussie dollar will dominate local markets this week after a big slide saw it close at yet another six and a bit year low of 69.08 US cents early Saturday morning.
The currency’s closing level was the six and a bit year low, a sign usually of more selling pressure to come this week.
The dollar lost 1.1 US cents in trading on Friday night in the wake of the indifferent US report for August left markets confused about the timing of the long forecast US rate rise slated for this month.
Local brokers, analysts and business media have already shown great confusion about the falling dollar. Many see it as a somehow ‘bad’ sign of national economic weakness, when all it is is a normal reaction (at last) to the near 40% plunge in our terms of trade over the past four years.
Since June 30 (the end of the 2014-15 financial year), the Aussie dollar has lost close to 9% against the greenback, while since the start of the year its fall is close to 15%. In terms of the trade weighted index (which covers the currencies of our major trading partner) the dollar is down 6.8% since the end of June, meaning the fall has been more general.
The fall from the start of the year is around 10%. That’s because the fall was slower against other currencies up to the end of June, but has accelerated since then, which is why the Reserve Bank has changed its tune on the dollar’s fall and now sees it as increasingly reaching towards a ‘fair’ lower value.
But that will not happen for a while as the market ‘overshoots’ – that is, falls too far, as markets generally do when gloom and doom abounds.
The continuing weakening of the dollar is good news for those companies exporting from Australia, but bad for imports such as car companies and Caltex and Shell which are importing more and more petrol, diesel and other fuels. While the fall in oil prices is helping, the price in Aussie dollars is now rising.
As well look for companies reporting in US dollars (BHP Billiton, Rio Tinto, CSL and QBE for instance) to feel the pain of the strengthening greenback.
Looking at the way markets finished last week, it wasn’t good news for investors anywhere.
Wall Street markets lost 3.4%, Eurozone shares fell 2.9%, Japanese shares fell 7%, Chinese shares fell 2.2% and the Australian share market lost 4.2%.
Commodity prices were mixed with oil up but metals down and Bond yields declined as deflation fears and safe haven demand persisted
In New York, the S&P 500’s 1.5% dip on Friday to 1,921.23, took the global benchmark index’s weekly fall to 3.4%
The Dow Jones Industrial Average fell 3.3% to 16,102.58 and the Nasdaq Composite slid 3% and finished the week at 4,683.92.
In Australia the ASX 200 ended slightly higher on Friday, up 0.25% or 12.8 points to 5040.6, but lost 4.2% over the week.
The All Ordinaries lost 4% for the week to end on 5060.8.
The ASX briefly slipped below the 5000 level again on Friday, touching as low as 4995.6 before recovering.
