65 million

Hi all,

I was wondering wether the forthcoming election uncertainty will mean a temporary devaluation in the Ozzie dollar? Is this likely to happen just because of political uncertainty?.

We should complete our house sale very soon and looking for the best time to change into dollars before December.

thanks,
65KK

DPD

It depends on a lot of factors really. October election could see a November or December rate rise (possible December in an attempt to curb Christmas spending and the increasing consumer debt rate?).

Then there's also International perception. Howard seems to have a pretty good international identity (or at least a safe one) whereas Latham may still be unknown (maybe the US media picked up on his comments?). A change could see an International devaluation of the AUD dollar if investors become weary.

MikeStanton

The economists' view is that it is unlikely to have much impact in the short term (next 6-12 months). Whoever wins, the Reserve Bank is likely to increase interest rates in the next 2-3 months (unless house prices crash), which may cause the A$ to appreciate against £. Neither party has massive spending (or cut-back) plans for the next few months.

So, A$ : UK rates may go in A$'s favour (assuming the market hasn't already taken it into account) over the next 2-3 months. Perhaps A$ 2.4 to £1?

65 million

Found this on Bloomberg today:

Australian Dollar May Fall on View Election to Delay Rate Rise
Aug. 30 (Bloomberg) -- The Australian dollar fell after Prime Minister John Howard yesterday called an election for Oct. 9, raising expectations the central bank will keep interest rates unchanged at its two meetings scheduled during the campaign.

Leaders of the ruling Liberal-National Coalition and the Mark Latham-led Labor Party yesterday pledged to run budget surpluses to help keep interest rates from rising. The central bank sets interest rates independently of the government and has kept its key rate unchanged at 5.25 percent since December.

``It's very unlikely the Reserve Bank will hike rates in a highly charged political environment,'' said Greg Gibbs, a Sydney- based senior currency strategist at RBC Capital Markets. ``The market is now focusing in on the possibility of a change in government and markets don't like the unknown.''

The Australian dollar bought 69.95 U.S. cents at 12:41 p.m. in Sydney from 70.28 cent in late New York trading Friday. The currency last week had its biggest decline in five weeks.

The currency earlier fell as low as 69.93 cents, the lowest in almost four weeks, after Sons of Gwalia Ltd., the second- biggest Australian gold producer, said it appointed external administrators, raising concern the company will sell the local currency to close out forward contracts and other derivatives.

``Whenever foreign exchange markets see a company call in an administrator, there is an underlying assumption that some of those hedges will be unwound,'' said Robert Rennie, a Sydney-based currency strategist at Westpac Banking Corp.

Budget Surplus

Thirteen of 22 economists surveyed by Bloomberg News forecast the Reserve Bank will raise its target rate for lending between banks by the end of the year. The bank next meets Sept. 7.

Howard said re-electing his government will ensure interest rates stay low.

``People can more readily trust me to keep interest rates low, standards of living high and the budget strong,'' Howard told the Nine Network's Today Show.

Latham said a Labor government would also work to keep interest rates low.

``Labor has a pledge to keep the budget in surplus, and ensure we have a lean and efficient government so we can put downward pressure on interest rates,'' he told reporters in Sydney yesterday.

The October election increases the chances the Reserve Bank will raise interest rates in November and will support the Australian dollar later this week, '' said Jonathan Prince, head of foreign exchange institutional sales at National Australia Bank Ltd. in Sydney.

Central Bank

``There's a sense the central bank here has been somewhat on hold as they've waited for an election to be announced,'' said Prince, in an interview. The bank may raise rates a quarter point in November, he said.

The yield on the December interest rate futures contract rose 3 basis points to 5.5 percent, indicating traders see a greater chance the Reserve Bank will boost rates by the end of the year. The yield on the September futures contract was unchanged at 5.44 percent.

The December contract has traded at an average yield of 54 basis points above the Reserve bank's cash rate in the past year. A basis point is 0.01 percentage point.

Australian government bonds fell with the yield on the 6.25 percent bond maturing in April 2015 up 5 basis points to 5.58 percent.

`Uncertainty'

``The chance of any Reserve Bank action has diminished a little further,'' said Richard Yetsenga, a currency strategist at Deutsche Bank AG in Sydney. The election ``may introduce some very short-term uncertainty for the currency.''

Australian dollar investors attention will turn to this week's raft of economic reports for further evidence the economy is strengthening sufficiently to warrant an interest rate increase after the election, said Yetsenga.

Australia's dollar and bonds showed little reaction to a report showing the nation's current account deficit narrowed in the second quarter to AS$11.97 billion ($8.38 billion) from A$12.09 billion in the first quarter. Australian company profits rose 10.3 percent in the second quarter, a separate report showed.

The economy probably grew 0.9 percent in the second quarter, according to a Bloomberg News survey of 22 economists. Australia will release gross domestic product figures for the second quarter on Wednesday.

The government will also report the nation's trade balance tomorrow, building approvals on Thursday and retail sales on Friday. The Reserve Bank of Australia will also report credit provided to consumers and businesses tomorrow.



To contact the reporter on this story:
Chris Young in Sydney at [email protected]

To contact the editors responsible for this story:
Walter Krumholz at [email protected]
or Dan Moss at at [email protected]
Last Updated: August 29, 2004 22:53 EDT

bondipom

Currently the Aussie markets sees both Labour and the Coalition as fiscally irresponsible as each other.

65 million

from bloomberg...

Retail Sales Unexpectedly Fell 1 Percent in July as Households Save More

ING May Raise $70 Million From Austbrokers Initial Share Sale, People Say

S&P/ASX 200 Index Falls, Paced by Woolworths; New Zealand Index Declines


Australian Dollar Headed for Weekly Fall; Retail Sales Drop
Sept. 3 (Bloomberg) -- Australia's dollar headed for its second weekly loss as retail sales unexpectedly dropped in July, adding to signs the economic expansion is fading and reducing expectations the Reserve Bank will raise interest rates.

The local dollar dropped this week after reports showed Australian house prices had a record quarterly decline and building approvals fell in July for a third straight month. Earlier this week a report showed the economy grew at two-thirds the pace economists expected in the second quarter.

``The retail sales in addition to the softness in the housing market shows there are cracks in the economy starting to open up,'' said David Mozina, head of foreign exchange strategy at ABN Amro Australia Ltd. in Sydney. ``Domestic data suggests the Aussie will be pressured to the downside.''

The Australian dollar bought 69.84 U.S. cents at 1:08 p.m. in Sydney from 69.93 cents in late Asian trading yesterday and 1.4 percent from a week ago. The currency earlier fell to 69.41 cents, the lowest since July 29. The local dollar will fall to 65 cents within three months, said Mozina.

Retail sales fell 1 percent from June, when they surged a revised 2 percent, which was the largest increase in more than three years, the Australian Bureau of Statistics said in Sydney. The median forecast in a Bloomberg News survey of 21 economists was for a 1.3 percent increase.

House prices fell 1.2 percent in the second quarter from the previous three months. That was the largest drop since records began in 1986. Approvals to build homes and apartments or undertake renovations in July fell 0.7 percent from June.

Gross domestic product rose 0.6 percent in the second quarter compared to the median forecast in a Bloomberg News survey of 24 economists for a 0.9 percent expansion.

`Interest Rate Cuts'

``It wont take much more of this and the Reserve Bank will be talking of interest rate cuts,'' said Stephen Koukoulas, chief strategist at TD Securities Ltd. in Sydney. ``I maintain my bearish call for the Australian dollar'' of 64 cents by year-end.

The Reserve Bank of Australia has kept its overnight cash rate target unchanged at 5.25 percent since December. A Bloomberg survey last month showed 13 of 22 economists forecasting at rate increase by year-end.

Futures traders scaled back bets this week the central bank will raise rates by the end of 2004. The implied yield of the December 90-day bank bill futures contract, which tracks interest rate expectations, has fallen to 5.45 percent from 5.47 percent a week ago. The yield has averaged 53 basis points above the Reserve Bank's cash rate in the past year.

Election

The currency fell earlier this week after Prime Minister John Howard called an election for Oct. 9, raising expectations the central bank will keep interest rates unchanged during the campaign, said Mozina.

Howard's ruling Liberal-National Coalition, which won power in 1996, is contesting the election with the Mark Latham-led Labor Party.

The weaker-than-expected economic reports this week ``Don't help Howard's cause in the run-up to the election which could make the backdrop all the more uncertain and induce some more weakness into the Australian dollar,'' said Mozina.

Australian government bond yields have fallen to five-month lows this week following the economic reports. The 6.25 percent Australian government bond maturing in April 2015 was trading at a yield of 5.48 percent, up 5 basis points from yesterday.



To contact the reporter on this story:
Chris Young in Sydney at [email protected]

To contact the editor responsible for this story:
Beth Thomas in Tokyo [email protected]
or Dan Moss at at [email protected]
Last Updated: September 2, 2004 23:26 EDT