Fed Raises Rates

Thats a good article, I agree with most points.

RBA in Australia should have dropped interest rates down to zero when the US did and kept it there until the economy got back up. Thats why US is slowly turning around and Australia is not and if anything lower building activity is going to cause more problems.

If they are smart at all, now that we have much tighter lending criteria, they should start cutting interest rates to as low as they can. I am an advocate of 0% interest rates in Australia until we have fully heated up the economic activity again.

The tricky point about AUD is the commodity prices amongst other exports. A lower AUD is one of the best things that could happen but the problem is as soon as it drops by a bit a lot of countries including China switch to buying from Australia and the impact is that almost immediately AUD goes back up.

 

Yeah Oz is looking like becoming the wolds largest exporter of gas. This is/will have a huge effect on the exchage rate.

http://www.ogj.com/articles/2017/07...a-achieves-record-lng-exports-in-2016-17.html

 

Yup, a lot of that is what's driving the QLD economy and keeping it afloat. But again that will depend a lot on what direction oil/gas prices go in the future.

 

Absolutely

 

largest exporter of LNG, not natural gas in general. LNG market share is just about 10%. Why huge effect if market share is small and there are many LNG exporters? In 3-4 years US is going to produce more LNG than Australia.

 

Because I was talking about the effect on the Australian economy and AUD not the world

 

I don't get it. LNG is very small market and there are many competitors, and will be more. Even China may reduce its import from Australia as they build cheap gas pipes to Russia now and resell it to other Asian countries.

How can that have huge impact?

 

The other thing to consider is what the European Central Bank (ECB) does. The Eurozone's economy has been picking up, so it could be sooner, rather than later.

Outlier Economists See ECB Raising Rates as Early as Next Year

The Bank of England put up rates earlier this year, but that was sold as undoing a cut made after the Brexit vote. It's possible that there might be others.

But if the EU and UK are raising rates, then we could be entering a tightening cycle, as things finally start to normalise after the GFC.

 

I don’t agree. The drain on the economy is debt. We have too much money locked in dead end assets like houses and less spent into business that grows money.

Cutting rates does not increase spending to stimulate the economy, it just encourages people to take more debt.

We need to change people spending on homeloans and get them wasting it on stuff they don’t need to grow the economy.

Btw. - The majority of people are not investors and they are the ones I am referring to when I talk about having too much debt. I don’t care about investors as much, just average people spending money on houses.

Investing money into business or wasting it on useless consumer products might not be as good for the individual, but it’s good for the economy.

 

You have to be kidding

The effect of LNG growth on global gas markets | BP Energy Outlook | Energy economics | BP

 

your link is about effect on global gas market, but your statements were about huge effects on Australian economy (and AUD).

AU export is about $330B, LNG export is $15-20B. Even if it's doubled over next years and import remains the same, the effect is positive but not huge as you said. A few % is noise.

Considering that the industry and supply & demand are extremely volatile (LNG is replacable!), any predictions about it are useless.

 

US FED is also forecasting another 3 rate rises in 2018.

Financial Times

 

You know that doesn't even make sense

 

you know that was typo (fixed)

 

We forecast the annual value of Australian LNG exports to exceed AUD 27 billion in 2017 and approach AUD 35 billion in 2018, overtaking coal as Australia’s largest export after iron ore.

https://business.nab.com.au/wp-content/uploads/2017/01/gas-and-lng-market-outlook-Jan17.pdf

The value of gas exports will surge by nearly 60% in the next two years, from $22.3bn to $35.4bn, as Australia becomes the world’s biggest exporter of LNG.

Australia's gas exports set to surge as new projects come on tap

“We estimate oil and gas production — as measured by value added — will approach iron ore production in the next few years. The upshot is the LNG price is a growing influence on Australia’s terms of trade and AUD.”

Here's why LNG looks set to rival iron ore as a key influence on the Australian dollar

As a result of these trends, between 2015-16 and 2017-18, the value of LNG exports is expected to more than double, increasing from A$17 billion to A$37 billion according to December’s REQ, while medium-term projections (made in the March 2016 REQ) have export values exceeding A$47 billion by FY2021.

Australia’s export performance updated: Resources, energy and the outlook - Austrade

 

radson,

in 2004 AU export was 2+ times lower than today, but exchange rate is similar - between 0.7-0.8 - there is NO direct dependency between export and exchange rates.

Australia’s export performance in 2016 - Austrade

 

so you think that the price of the AUD is not partly dependent on payments for imports and exports?

 

it's dependent, but there are many variables in that equation... I'm just saying it'll be definitely good for economy, but whether it will affect exchange rates or not, is unknown. Depends on other sectors of economy, import, foreign investments, etc., plus contribution of LNG increase is significant, but not huge... maybe we have different definitions of 'huge'? )

 

It is hard to still objectively define the forces moving a currency, since currency manipulation has become a national sport since GFC. Long term trends is that speculative dollar economies (Australia, Canada, Singapore, NZ ...) are typically counter cyclical to the American dollar. But each currency should be assessed against a bucket of other currencies, not a one to one.

 

that's true...
according to this: TABLE-Global FX volume reaches $5.3 trillion a day in 2013 -BIS and Here's how much currency is traded every day AUD accounts for 8% of total daily currency trade ($5.3T), so the effect of local imports/exports on AUD exchange rate is not large.

That's probably why RBA analyses effect of exchange rate on import/export rather than other way round

https://www.rba.gov.au/publications...-of-australian-trade-to-the-exchange-rate.pdf