Dollar surge to continue
The Australian dollar is set to continue its surge above US80 cents in the coming months, economists say, underpinning increasing speculation that the Reserve Bank could lift interest rates as soon as April.
At 11.30am the Australian dollar was trading at a new high of US80.38 cents, up from US79.97 cents on yesterday’s Sydney close. The dollar hit US80.33 cents at 10.30am yesterday, its highest price since 1996.
What the economists say
Westpac chief economist Bill Evans says recent pro-tightening comments by Reserve Bank assistant governor Malcolm Edey have caused the bank to believe that interest rates could rise “as early as next month”.
CBA currency strategist Besa Deda says some financial markets have fully priced in 25 point interest rise by the end of 2007, while a June interest rate rise is factored in at 70% likelihood.
Deda says the market’s increasing confidence that interest rates will go up, a strong rate of growth in China and other commodity-consuming markets, and the gentle decline of the US economy, are key factors behind the Australian dollar’s rise.
“We wouldn’t rule out US80 cents to US82.5 cents in coming months. The fundamental conditions are there to keep it on that upward trend, although in the short term we may see a bit of a pull back and consolidation of recent gains before appreciation continues,” Deda says.
OzForex manager of corporate business Jim Vrondas says the carry trade between the very cheap yen and high yielding currencies will be a key factor pushing the Australian dollar as high as US82 cents over the next six months.
In the immediate term, however, tonight’s US Federal Reserve decision on US interest rates could have a big impact on US/Australian dollar trading, he says. “The markets aren’t expecting any movement, so a shift either way could come as quite a shock and will have a significant effect,” Vrondas says.
Winners
- Price makers in the commodities sector.
- Big importers in the retail and wholesale sectors as the strong dollar increases their overseas purchasing power.
Losers
- While exporters in highly competitive sectors such as manufacturing.
- Tourism operators who rely on overseas visitors will lose out as tourists from weak currency countries such as Japan and the US shun Australia for destinations where they can get better value for money.
— Mike Preston
Banks: Time to fess-up on net fraud?
Pressure is growing on Australian banks to publicly disclose losses stemming from internet banking scams. KPMG’s head of computer forensic and fraud unit Gary Gill, says in today’s The Australian Financial Review that there will be more focus by regulators as customers are forced into online banking as a lot of internet banking fraud is classified as bad debt.
But the Australian Bankers’ Association says the incident rate of fraud is very low for Australian financial institutions when compared with the billions of dollars of transactions in the payments system every year. See also Trends & Ideas story on credit cards for sale on the internet.
A leg up for SMEs – easier collective bargaining?
The simplified collective bargaining provisions introduced by the Federal Government on January 1, 2007 have not turned out to be the revolution some people were hoping for, says Council of Small Business Organisations of Australia chief Tony Steven.
The new rules allow small businesses to form an alliance to negotiate with a supplier or other big company in a way that would otherwise be anti-competitive and prohibited by the Trade Practices Act.
Previously, small business groups had to seek authorisation before starting to negotiate. Now, they only have to notify the ACCC, and if no objection is received, they can proceed. It is a quicker and cheaper process.
But small businesses have been slow to jump on board. Today the Minister for Small Business and Tourism, Fran Bailey, has announced the Government will spend $2 million on an education campaign.
COSBOA’s Steven says the process is limited to groups dealing with one company and to dealing outlined in the conditions. But he says it could be useful for retailers dealing with a supplier, or civil contractors dealing with an equipment manufacturer.
Industry groups may be the ones to facilitate collective bargaining so Steven is hoping some of the marketing is directed to small business organisations. “It is a leveling of the balance between the power of small business and big business.”
To find out more about collective bargaining, visit www.business.gov.au.
Costello calls for tax cuts
Business groups have joined Federal Treasurer Peter Costello in calling for the states to cut stamp duty on commercial property transfers. State premiers have responded in kind, telling the Treasurer that the big federal surplus means he should lead the way in slashing business taxes.
Summit calls for low-cost housing support
Today’s National Affordable Housing Summit in Canberra has called on federal and state governments to provide cash payments, tax credits and other benefits to encourage investors, developers and landlords to provide low cost rental housing, The Australian Financial Review reports.
The Summit, a coalition of groups including the Australian Council of Social Services, the Housing Industry Association of Australia and the ACTU, say research shows close to 16% of renters will be in housing stress by 2009-10 if nothing is done.
The call follows Australian Bureau of Statistics figures released yesterday showing new dwelling commencements dropped by 0.8% in December 2006.
Call to end carbon reduction uncertainty
Leading economist and Reserve Bank board member Professor Warwick McKibbin says Federal Government should move quickly to introduce a carbon trading scheme to provide greater certainty to business, The Australian reports today.
A quick move to introduce a market-based trading scheme could encourage large scale capital investment and stimulate the economy, McKibbin says.
Meanwhile, oil giant ExxonMobil has rejected industry consensus and called on the Government to look at a carbon tax instead of a carbon trading scheme. In it’s submission to the Prime Ministerial Task Group on Emissions Trading, ExxonMobil says while Australia is not yet ready for carbon reduction scheme, when the Government does move it should opt for a carbon tax because it provides greater certainty for business.
Economic round-up
There are multiple signs of rising inflationary pressures in today’s economic data.
The Westpac/Melbourne Institute leading index of economic activity increased by 4.8% in January. The above-trend result indicates economic growth will accelerate significantly over the next three to nine months.
New car sales increased in February by 1.3% in trend terms, according to Australian Bureau of Statistics figures released today. It is the ninth consecutive month new car sales have increased.
Skilled job vacancies fell by 2% in March in trend terms, according to the Department of Employment and Workplace Relations Skilled Vacancies Index released today. Printing trades (7.8%), marketing and advertising professionals (7.7%), and science professionals (7%) experienced the biggest fall in vacancies.
The S&P/ASX 200 is up 0.26% to 5891.7 at 12.30pm.
