Australia’s economy held up well before the global meltdown.
Australia held up great through it. In fact, it was the only major, developed economy to never go into a negative GDP growth reading during that whole time.
But more importantly, Australia is doing great even after the global crisis is abating.
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Lately, I’ve seen four encouraging signs that Australia is still chugging along so much better than most of the other major economies:
• Australia’s four largest banks are reporting that their profits in the second half of the year will match or exceed those of the pre-global crisis levels. How many banks around the world can say that? Not many, I assure you.
• It seems everyone still wants a piece of the action in Australia. First it was the Chinese buying up companies in Australia. Now it’s the Singapore Exchange that’s offering to buy ASX, which is Australia’s main stock-exchange operator. Now that will have to go through regulatory approval, etc. But they’re willing to pay a 37 percent premium from what ASX was trading at on Friday’s close. Big mergers are always a good sign and vote of confidence.
• Australia is experiencing a mining boom right now. Their mining companies have so much demand that it’s starting to bring down their unemployment rate at a fairly fast clip and BHP Billiton says that they will probably even depend upon more immigration into the country to be able to meet the demand that they are experiencing right now in their mining industry. How many developed countries can say they are experiencing a boom right now? I’ll give you a hint … none, other than Australia.
There are others that are doing well, but those are considered emerging market nations.
• Australia’s consumer price index (CPI) came in strong last week and this week its producer price index (PPI) came in well above expectations as well. On Sunday night, the PPI came in at 1.3 percent versus 0.6 percent expected and 0.3 percent last time. So this means that inflation is growing at the producer/wholesale level and the CPI numbers last week told us that it’s being passed along at the consumer level too. Rising inflation has to be dealt with by raising interest rates.
As rates increase, so does the yield that investor earn that hold Aussie dollars. Therefore, this is putting a renewed demand upon their currency.
This has caused Australia’s dollar to hit parity (equality) with the U.S. dollar last week before it backed off its price.
There’s a good chance that in light of this most recent news that the price will hit parity again with the dollar and possibly even top it.
The fundamentals are there in the “land down under” to support a rising Aussie dollar but the fundamentals simply aren’t there in the U.S. to support a stronger dollar.
So this pair could easily justify a higher rise in price from a fundamental perspective.
Also, now that the G-20 meeting is over and these countries have agreed (in theory anyway) to not devalue their currencies … then it’s given more fuel to the higher-yielding currencies like the Australian dollar.
So as a result of that meeting, the dollar has continued its descent and the higher-yielding currencies have continued their uptrends, including the Aussie & New Zealand dollars.
Therefore, there are many reasons to be an owner of Aussie dollars.
This country has truly been a “fundamental fortress” in a world of fundamental disasters over the past two years.
About the Author: Sean Hyman
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