Business Week: From unemployed to unemployable
It is one of life’s tragedies that the longer people are unemployed, the more likely they are to stay unemployed. Michael Pascoe comments.PT4M16S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-3ang9 620 349 June 23, 2014
Upbeat Chinese data has sent the Australian dollar soaring towards a 2014 high and raised questions about whether the Reserve Bank will be forced to resume jawboning the currency.
The dollar jumped half a cent to above US94¢ after a private survey suggested better-than-expected activity in China's factories in June.
The dollar jumped after the HSBC China manufacturing purchasing managers' index flash came in at 50.8 in June, well above economists' expectations of 49.7. Photo: Bloomberg
In late afternoon trade on Monday it was fetching US94.39¢.
The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index rose to 50.8 in June from May's final reading of 49.4. This fuelled investor optimism, with a reading above 50 representing a quickening expansion in the sector.
''It's over the 50 threshold for the first time this year which is a slight indication that some of the data is turning the corner,'' said HSBC's head of asian currency research, Paul Mackel.
Although the reading was positive, Mr Mackel said it was too early to say if China's economy was stabilising, saying further validation was needed in coming months.
But any indication China's economic data pulse was gaining momentum would support the Aussie, considering the Asian powerhouse is Australia's biggest trading partner.
Mr Mackel said if the Aussie breached US94.5¢, there would be little resistance for the currency until about US96¢, with the local unit hitting a high of US96.70¢ in October.
''We are bumping up against some important levels for the Australian dollar now. It does make you think that coming into the next meeting for the RBA that the jawboning language will become a little noticeable again.''
The RBA has recently refrained from talking down the currency, merely saying that it was high by ''historical standards''.
This is despite its strong rhetoric around the Aussie in December when the currency fetched an average of US89.78¢ and commodity prices were higher.
Bank of America-Merrill Lynch chief economist Saul Eslake said the RBA ''clearly believes that monetary policy settings are appropriate to support the economy as the decline in mining investment gathers momentum''.
''This is especially true as it remains cautious as to the prospective recovery in other sectors of the economy,'' he said.
Although the Aussie has shown ''incredible resilience'' in the past month – with some economists and traders likening it to a safe-haven asset as violence flared in Iraq – its rise is expected to be short-lived.
Mr Mackel predicted the Aussie would crumble to US86¢ by the end of the year. This is in line with many bank forecasts.
''It's not so much that we have a negative view on the Australian economy or anything like that,'' Mr Mackel said.
''We believe that come the second half of this year that the US dollar positive story will get more traction than has been the case in the past few months. As that becomes more likely the US dollar will be returning hard against a lot of currencies, particularly the European currencies and a number of G10 currencies.''
NAB global co-head of FX strategy Ray Attrill said the Aussie could rise a little further.
He said US Fed Reserve chair's Janet Yellen's dovish comments on inflation last week, which suggested US interest rates will stay at record lows for at least another year, was supporting the Aussie.
''On that basis you still think the carry trade attractions of the Australian dollar could be enough to carry it higher," Mr Attrill said.
''But we don't think it will go as high as parity.''
Mr Attrill said there had been some ''false propaganda'' about the strength of Japanese demand for Australian assets and interest rate products.
''That's certainly happening but in the overall scheme of things it's not strong enough in itself to drive us back up towards parity.
''But obviously current market conditions make it very hard to sell the Australian dollar – that's the problem really.''