Don’t fret about the gyrations in the value of the Australian dollar this week.
The dollar fell, then rose, then eased again in the 36 hours up to this morning while the Australian stockmarket was stronger yesterday in the wake of the two day sell-down on Monday and Tuesday.
The relief rally on the Tokyo Exchange helped steady nerves, despite more bad news from the stricken Fukushima Daiichi nuclear power station complex.
The gyrations in the value of the dollar came on the back of the sell-off on Tuesday as global investors (mostly hedge funds and other rapid traders) retreated from riskier investments (Japan is one, as are shares and currencies of commodity producers).
So the dollar traded around 99 USc yesterday as investors waited to see what came out of Japan.
The currency then dipped to around 98.35 USc overnight as the US dollar fell under 80 yen to a new 16 year low.
It can be argued in fact that the market was more upset by the realisation that there might not be a rate rise in Australia until late 2011, if at all, as a result of the release of the minutes of the RBA board meeting.
The central bank almost purred as the minutes laid out the general contentment with the health of the economy.
Yesterday’s release of the Westpac/Melbourne Institute Leading Index (which indicates the likely pace of economic activity three to nine months into the future) would have also added to that sense of ease.
The index was at a reading of 3.5% in January 2011, down from the 4.6 recorded in December and slightly above its long term trend of 3.3.
According to the way the index is said to work, that is a signal that Australia’s economic growth is likely to slow over the next three to nine months.
Westpac Senior Economist Matthew Hassan said in a statement that January marked the first Index reading to clearly show a significant impact from severe weather events in late December to early January.
"The monthly fall in the growth rate dip is likely to be followed by more volatility in coming months as the initial hit from the Queensland floods drops out but we see negative impacts from other events," he said.
"Cyclone Yasi in early February and in particular the massive earthquake in Japan in March. This will make getting a read on underlying economic trends more difficult than normal."
The annualised growth rate of the Leading Index slowed to 3.5 in January from 5.9 last August.
The 2.4 percentage point deceleration was mainly due to a weaker contribution from commodity prices, down 1.4 percentage points, as well as significant drags from falling dwelling approvals, down 0.6 percentage points.
"While February may see some reversal in dwelling approvals and a more positive contribution from the sharemarket, Japan’s earthquake crisis is set to have a big negative impact in March with local shares down 6.3 per cent in the first half of the month," Mr Hassan said.
The RBA won’t dispute that.
Meanwhile more confirmation yesterday that housing remains stuck in a rut.
Figures for December quarter dwelling stats from the Australian Bureau of Statistics showed a 5.3% fall in the three months to December 31 to 37,897 units, from an upwardly revised 40,039 units in the September quarter (which represented a 13% fall).
In the year to December 2010 total dwelling commencements fell 7.3%.
The median market forecast was for a 1.4% rise in the December quarter.
The ABS said the seasonally adjusted estimate for new private sector house commencements fell 8% in the December quarter following a fall of 5.4% in the September quarter and the seasonally adjusted estimate for new private sector other residential building rose 4.2% in the December quarter following a fall of 8.1% in the September quarter.
