So the dollar is dropping, but what’s happening with the sharemarket?
The sharemarket is typically harder to predict, but it’s likely to fall lower today. In recent weeks the Australian sharemarket has lost all the gains it made earlier this year. While there’s no cause for alarm just yet, it’s certainly not a great result for Australian investors.
The Australian sharemarket is regularly impacted by foreign markets and often takes its lead from the Dow Jones Industrial Index. Overnight, the Dow Jones last night closed 1.35% lower, down 206.04 to 15,112.19. It’s fair to say the Australian market will probably follow suit.
Kennedy says, in the longer term, Australia’s sharemarket growth is predicted to be “sub-trend”.
“In the US, growth is expected to accelerate a little bit, but ours is looking a little bit more grim,” he says.
I’m feeling a little nervous… what impact is this going to have on Australian businesses?
Each sector is going to respond differently. Generally, a lower Australian dollar is seen as a good thing as this allows manufacturers and any business which exports to be more competitive globally, but for importers, it’s not great news.
“Industries like retailing, manufacturing and wholesalers are going to benefit from this as exports become more attractive and competitive on an international stage,” Kennedy says.
“With the sharemarket, first of all you need to consider the wealth effect. If shares fall, household and business wealth also falls. This translates to more cautious consumers, which impacts upon trade activity and spending,” he says.
Despite this, Kennedy says domestic retailers have a reason to celebrate. A lower Australian dollar could force more Australians back to local retailers as international online shopping is no longer as attractive an option.
Clearly the Australian economy is affected by overseas decisions, what do we need to look out for in the coming months?
Whether or not the stimulus measures are cut back is all dependent on how the US economy and job market fairs. The Fed is predicting US unemployment will continue to fall, so the US labour data and jobless rate will be a key figure to look out for. How quickly it falls will also influence the Fed’s decisions around raising interest rates.
In Australia, we’re watching the RBA’s decision as to whether or not to lower rates further and this is influenced by Australia’s job data. The labour market typically provides an overall outlook on the health of the economy.
