The huge gap that now is opening up between Australian and other western economies’ rates will continue to push the Australian Dollar higher as investors right now cannot buy enough of the so-called “Lil’ Aussie battler”. There seems to be no upward limit to the dollar. Imports will become cheaper and despite lamenting that exporters will suffer, there is strong evidence that traders have survived in the past with a much stronger dollar – in fact excelled when the Australian dollar was considerably more expensive.
The cries of exporters or politicians are unlikely to see the Reserve ease up on it’s pursuit of a balanced economy. Is it likely to be happy with growth in employment and benign inflation? Possibly not. It still has in sight the mounting debt we are all indulging in? Escalating personal, corporate and public debt is still not on the front pages. So in the meantime we will continue to splurge and fatten the goose. But debt will become a very hot topic in 2004.
Moving away from the economic picture for the moment. If you look at your chart for the 90 day Bank Bills (that’s your homework) you will see that bonds have almost been in free fall since June this year. Technically it is possible that this free fall may correct itself and in fact reverse. If that is the case then interest rates could fall albeit temporarily. So what is the economic rationale for this view? As Reserve Banks aim to achieve economic equilibrium they can also get it wrong and if that happens then they may have to reverse the increases – maybe only temporarily. There has never been an era where interest rates have been so finely tuned as now, thus adjustments are an essential element of keeping an economy on track.
Long term rates do look set to go higher – even if they were to reverse for a few months - but what is encouraging is that we are unlikely to go back to the bad old days of the uncontrollable rates of the late 1980’s.
So what does that mean for trading the markets? It means volatility, which can be advantageous for those who have equipped themselves by training and regular honing of their trading skills.
Thank you for all your wishes of “get well”. I wont bore you with the grizzly detail – but my right hand will be back to five instead of the current two – as if it did not take me long enough to learn how to type with five fingers!
Also, the team is so grateful for the continuing stream of accolades – we are so pleased we are hitting the right spot.
Enjoy the ride.