International currencies have all slipped against the US dollar. This means that global liquidity is tightening. So it's time to be cautious.
With trade war tensions escalating between the US and China, it’s surprising to see that Aussie stocks have powered ahead. Ironically enough, we have a falling Aussie dollar to thank for this.
The message here is clear. The US Federal Reserve is slowly draining excess liquidity from emerging markets. That makes investing during these times particularly tricky.
The RBA reckons China’s debt is now around 260% of GDP. If the US and European economies slow into the second half of 2018 and into 2019, then China will feel the effect. How will this impact Australia?
If you’re caught up wondering/hoping how much you’re going to get from the budget, you’re on the path to putting security over freedom. Because when you want the government to provide for you, it’s pretty much all over.
Australia, as an investment destination, suffers from an increase in risk perceptions. Foreign capital is less willing to invest here, or buy debt issued by the banks to fund the mortgages of Aussie battlers. As a result, the Aussie dollar falls. However, the ‘magic’ of a falling dollar is that it increases the purchasing power of foreign currency.
Amongst all the panic and hand-wringing over what the volatility of the past week means, we haven’t heard much about China. Which is kind of crucial, especially for Australia. Put simply (and accurately) if China holds up, Australia will be fine. So, is China holding up?
The Aussie dollar is getting a boost from stronger commodity prices. Recent price rises have helped push the dollar higher. The Aussie dollar has had a strong start to the year. However, it may be more cyclical than anything to do with the underlying strength in the Aussie dollar.
Each year millions of traders are fixed to their screens. They’re looking for trends and momentum in the forex market. According to the Bank for International Settlements, the average daily value of forex is around US$5.3 trillion!
The main thing holding the RBA back from moving right now is weak household spending. That’s largely because of the huge debt burden households are carrying.