They're calling it the Australian Peso ....... Unfair on the Peso ?

2/4/15

 

Capital outflows put emerging economies under the cosh.....

"The great unravelling", Financial Times p.9

The FT's BIG READ examines in depth the precipitous position facing emerging economies as capital outflows reach their highest levels since the financial crisis. Commodity prices (not just oil), so crucial to most of these countries, have tumbled in line with falling demand, especially from China. The higher returns available in emerging markets in an otherwise low-rate environment had encouraged investment in the good times, but now those investors are reassessing the risks. On top of this and in a fine example of a vicious circle, the huge levels of dollar-denominated debt taken on by these nations at that time points to a bleak future now that the dollar is so strong. The question is, does all this presage just a well-needed shake-out or something far more sinister ?

 

They're calling it the Australian Peso ....... Unfair on the Peso ?

 

"Short View" , the Financial Times, p.15

 

One could hardly call Australia an emerging nation, but it too has currency issues. As an advanced economy blessed with enormous natural resources, it was able to engineer something of a boom while commodity prices remained high, but in line with other producing nations has suffered from the fall in demand (iron ore fell below $50 a tonne yesterday). The Aussie dollar has dropped over 12% against the USD in the last  6 months as a consequence. The central bank however is more concerned with boosting exports than the price of its currency, and has signalled lower rates at a time when the next move in the US will be to the upside (though we don't know when). How low will it go ?

 

It's made the front page...... but it's not as if it should come as a great surprise.

"Panic in the markets as poll jitters hit sterling" , The Times , p.1

 

We've talked before about the dubious rationale behind a strong UK currency (and by extension UK assets) ahead of May's general election. Yesterday the markets seemed to wake up to some of the realities as sterling tumbled on the exchanges. The two main parties are neck-and-neck in the polls, which suggest a hung parliament and it is unclear how long it might take either of them to cobble together a working alliance with smaller parties that might provide stable government. Strictly from a "markets" perspective, no effective government for any period of time would probably be the worst-case scenario.