EYE-BALL Guru on – The Value of the A$ – a report from ‘The Australian’s’ David Uren-
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Dec 23rd 2011:
To see more GURU posts:
– The Value of the A$ –
– a report from ‘The Australian’s’ David Uren –
| Author: EYE-BALL Guru |15th Aug 2012 |
|The story in The Australian today with the heading – ‘Don’t Intervene to cap dollar’ – was interesting reading. It is copied below:
The story is about whether the RBA intervenes in the currency markets to ‘cap’ the A$ … it canvases past history and the growth of the A$ market in Global FX trading. It highlights the risk involved when Central Banks try to protect currency value and what might happen if it fails.
But what the author David Uren does not tell you is what the cost will be if the A$ is not returned to its medium term average of around $0.75c. He does understand nor tell you about the A$100’s of billions already lost in A$ trade revenue over the past 8 or so years – up to as much as A$700 billion. He also does not tell you about how the off-shore investors, including other Central Banks investing in A$ assets, are doing so with hardly no risk of any currency slide.
It is not just the interest rate differential the investors enjoy – it is the currency appreciation and the capital gain contained within that position. The A$ fell sharply from parity to A$0.60c after the early 2009 GFC impact on global equity markets. Investors all over the world believed the ‘commodity trade’ was done. That is where the demand for minerals underpins the exporters currency. But as the GFC settled these same off-shore investors came back with a vengeance and again bought the currency. See chart action below:
The $A v $US 15 year chart … [Please click on any or all charts to enlarge in a new window.]
Either Uren does not understand the ‘currency’ trade ,or he just does not understand that he does not understand. With the RBA continually talking inaction on interest rates against a global marketplace where Central Banks were offering 0% interest rates – the RBA held firm with rates above 4%. The Australian Mortgage sector have paid an expensive price for ‘numskull’ RBA policies and a Government who just don’t get global markets.
There are many things a Central Bank or a Government can do to protect a currency. The decision to let the rest of the world rape and pillage our wealth whilst standing at the gate and welcoming these off-shore players is the biggest dumbest play by any Government in the world. And to cap it off – they awarded Wayne Swan the ‘Treasurer of the Year’ award just so he would not close down the windows of opportunity on offer.
For 20+ years China has pegged its currency to the US$ – and as the US$ has slid in value against all its major trading partners – China has reaped a gargantuan windfall for its exports and domestic growth. i.e. as the US$ has weakened on global markets – China’s Renminbi export receipts have grown as Australia’s have shrunk in A$ terms. A chart showing the US$ index over the last 15 years clearly highlights this – see below:
US$ Index 15 years: [Please click on any or all charts to enlarge in a new window.]
For the first 10 years of that equation – the rest of the world felt China deserved to be allowed to grow its economy and contribute to the world economy and supported the currency peg. In the last 10 years the rest of the world has suffered immensely because of the peg. Efforts to have China uncouple both their currency ped as the reason for prosperity, and the huge advantage it enjoys over every other Nation as a result – has seen diplomacy fail and fail miserably.
Australia is a smaller player in the global trade market – but the world loves our commodities, both mining and agriculture. Our miners and farmers have forgone $100’s billions of trade revenue over the last eight or so years – all because of the high A$ policy, with no compensation offers to counter their loss of A$ revenue. To give you some idea in mineral pricing in A$ and US$ terms, Iron Ore and Coal charts are presented to show first pricing moves over time, and then how those price moves are reflected in A$ terms.
Coal Price in US$ terms over 30+yrs … [Please click on any or all charts to enlarge in a new window.]
Coal Price in A$ terms over 6yrs … [Please click on any or all charts to enlarge in a new window.]
Iron Ore US$ 30+yrs… [Please click on any or all charts to enlarge in a new window.]
Sorry – could not find a comparative A$ chart for Iron Ore prices.
Copper US$ 20+yrs … [Please click on any or all charts to enlarge in a new window.]
Copper A$ 12yrs … [Please click on any or all charts to enlarge in a new window.]
The thing to look for in these charts is the peak and bottoms – in US$ prices they spike upwards – in A$ terms they tend to flatline … thus indicating the reduced A$ cash flow for our minerals. The overall trend can best be seen in the CRB Index –
CRB Index (US$) … [Please click on any or all charts to enlarge in a new window.]
Since the 2009 GFC selloff – this market has recovered .618 of the spike down, and another .618 of the spike upwards. These double Fibonacci numbers give insight to the ongoing correction of the original spike down in mid 2009. A break of the upper trend line on the above chart would indicate more corrective action, whereas a spike down below the July 2012 lows and the rising trend line would indicate lower levels, and quite possibly a retest of the mid 2009 levels.
The Australian Government – both during Howard’s term, and in the current Rudd/Gillard era have not grasp nor understood what has been happening as a result of the high A$ value. The RBA has equally been asleep at the wheel. A few weeks ago Guru did a post on ex RBA Board member Prof McKibbin’s comments about the rising A$ – read them here – his comments are 10 years too late.
As a Financial Editor – Uren either needs to knowledge up on his understanding of the real cost of the high A$ policy – or pass the baton to someone who can expose the stupidity of the current ‘RBA mandate’ – read here – This Mandate is far to simplistic for the complexities of Global investment and trade. This ‘Mandate’ is agreed to by both sides of Politics – in that ‘inflation’ and ‘interest rates’ are the tools used for the management of our economy.
25 years ago this might have been the case – but with 10 year bond yields in the high teen’s at the time, and inflation in double-digit numbers – ‘the above mandate’ was formulated. Since the early 90’s, 10 year bond yields have remained under 10% – and been as low as 4% – inflation has remained in a band of 2-3%.
With the GFC now entering its 5th year – surely someone should tap the RBA on the shoulder and tell them that they need a new mandate.
Treasurer Swan, and Opposition Spokesperson Joe Hockey are dumbfucks on matters of economic reality. Swan heralds a ‘pipeline’ of investment in excess of $500 billion – it will never happen with the A$ at these levels. Hockey is just so out of his depth that he just swoons and says – ‘it’s all to hard’ to understand. As such he just does not talk about the A$ value.
Uren should know better with the title he writes under.
Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.
The EYE-BALL Guru …