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 MARKET REPORTS |
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Outlook
What’s in store for the Aussie dollar and local equities?
April 14, 2008
Clifford Bennett, Chief Economist, Sonray Capital Markets
Sonray Capital Markets' Chief Economist Clifford Bennett forecasts continued strength in the Aussie dollar, rate cuts and further sharemarket volatility in the year ahead.
It is our view that the global economy has indeed already decoupled from the US economy. This does not mean the US is irrelevant, but that the US is no longer the dominant economic factor in terms of the global economic cycle.
Whereas most economies around the world once exported primarily to the US and then to western Europe, today most economies are more heavily intertwined in trade with their regional partners. This coming of age of more complex and well rounded national economies and economic regions, is as important as the rise of China and India toward being the new dominant global economic players.
The US will fail to recover from the first half 2008 recession until perhaps the second half of 2009. During this time we expect China to slow almost imperceptibly and for global growth as a whole to surprise current consensus expectations.
Subsequently demand for Australia commodities will remain strong, even though we expect domestic Australian GDP to fall well below consensus forecasts during the rest of 2008. The combination of a slowing domestic economy, with continued high demand for exports, will assist some recovery in Australia’s trade deficit by year end.
Even though the Reserve Bank of Australia is likely to cut rates by 25 to 50 basis points in the second half of 2008, correcting the errors of Q1, the Australian dollar will continue to climb, supported by what will remain very high interest rate levels by international standards. This will be especially the case in comparison to the US. The Fed will have already cut rates to just 1.5%, where they will remain on hold well into 2009.
Continuing, albeit diminished, Australian interest rate settings, an improving trade balance, and a plummeting US dollar will all continue to support the Australian dollar. Our year-end target for the Australian dollar remains US$1.0100.
US equity markets look set for a two to three month rally at this point, but may again be re-testing recent lows by year end. Australian stocks are likely to follow the US market higher in the medium term, and should experience a less severe decline than the US market in the second half of this year.
More articles from this edition of CompareShares:
Investing: Is the big Asian sharemarket boom over, or has it just begun?
Shares: 5 Experts' 1-5 year outlook for the Aussie sharemarket
Resident Trader: Opes Prime mess: who owns your shares?
Investing: Stocks that beat leaving money in cash
Stocks: Stock of the Week – Saferoads Holdings
Analysis: What’s in store for the Aussie dollar and local equities?
CFDs: Top ten share CFDs for the week
Retirement: Global turmoil hits retiring baby boomers
Companies: Another Opes Prime? Lift Capital collapses
Superannuation: Aussies reluctant to put extra in super
Disclaimer: This recommendation has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided by Sonray Capital Markets Pty Ltd ABN 18 104 482 993, AFSL 231151. These recommendations are current as at the date of issue. Past performance is no guarantee or reliable indication of future results. Trading in derivatives may involve a high degree of risk and significant loss, and is appropriate only for persons who can assume risk of loss in excess of funds deposited. This recommendation is of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. Although the information in this recommendation has been obtained from sources considered and believed to be both reliable and accurate no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein.
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions. |
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