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  • » Aussie dollar to drop below 66c - "benign" collapse ahead

#1 2014-09-11 08:17:40

SpacePete
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Aussie dollar to drop below 66c - "benign" collapse ahead

You have been warned...

Long term the Aussie$ has nowhere to go but down. The US will be raising rates while Australia is forced to keep rates on hold with the fall-off in mining investment hitting the economy hard and with the RBA trying to engineer a soft landing to prevent a huge calamity thanks to our massive level of personal debt that has been used to bid up house prices.

Needless to say, if there are any hiccups with the Chinese economy then things will go from bad to worse very quickly for the AUD.

With a growing population, increasing energy and food costs, a slowing economy, decaying infrastructure, accelerating unemployment and a critical lack of competitiveness against low cost and technologically progressive economies, we could see the quality of life in Australia begin to drop.

Those of us with sufficient gold and silver, or offshore investments, should be relatively okay as long as things don't get too bad in the cities (or wherever we live). No guarantees though as social cohesion is lost and growing numbers of angry, disenfranchised, unemployed (and unemployable) residents decide to take what they believe they are entitled to.

In the end, the piper will be paid for decades of economic ineptitude and greed.

Fears Australian dollar facing 'benign collapse' to $US66¢

The Australian dollar could face a "benign collapse" to US66¢ by the end of next year amid falling commodity prices, declining mining investment and reduced government spending, Deutsche Bank says in one of the most bearish forecasts for the local currency.

The plunge in the Australian dollar to the mid-US60¢ would come about if the Reserve Bank keeps interest rates on hold until 2016, if the US lifts its rates by mid-2015 and if the United States' dollar continues to strengthen, Deutsche Bank's chief economist for Australia Adam Boyton said.

..."Critically, we would view this as a benign 'collapse' in the Australian dollar; not one sparked by a domestic or offshore 'crisis'," Mr Boyton said in a research note, adding that the new projections fell below Deutsche Bank's current end-2015 forecast of US75¢.

..."A US65¢ number is quite possible in a negative scenario for China and much weaker commodity prices, and maybe a degree of financial stress in China, which has bigger global implications. Those are the kinds of things you need to get it down to those levels," Mr Gibbs said, adding that the Australian dollar had become a risk proxy for China.

He said it would be difficult for the Australian dollar to return to higher levels as mining companies keep their costs reined in and with improved business confidence driven by a lower exchange rate.

Mr Boyton's scenario for a mid-US60¢ came through a modelling of interest rate differentials between yields on 10-year US and Australian government bonds, one of the factors that drives the currency's movements.

...At the same time, the strengthening of the US dollar, which currency strategists expect to take place as the Fed withdraws its stimulus this year, would also contribute to the weakening local currency, Mr Boyton added. Deutsche Bank tips the US dollar to rise by 20 per cent against the euro and by 17 per cent against the Japanese yen over the next two years.

Deutsche Bank predicts that the Reserve Bank would keep the cash rate on hold at a record low of 2.5 per cent over the next two years, with the fall-off in mining investment hitting the economy harder in late 2014 and early 2015. Government spending is already projected to tighten in the later years of federal budget projections, while state government expenditure is also tipped to remain soft, forcing the central bank to maintain a loose monetary policy, the bank said.

http://www.smh.com.au/business/markets/ … 33cfl.html


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#2 2014-09-11 08:34:50

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

It's about bloody time!


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#3 2014-09-11 08:46:38

mmm....shiney!
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

SilverPete wrote:

The US will be raising rates

Will it?

SilverPete wrote:

while Australia is forced to keep rates on hold with the fall-off in mining investment hitting the economy hard

I have only a marginal contact with mining, but we are expecting bumper coal exports this year, and there appears to be a variable response from mining companies in regards to employment ie those mines where workers are overpaid and full of fat lazy bastards are getting laid off while those that employ contractors are hiring. Like I said, I don't have my finger on the pulse but it is not doom and gloom across the sector as the MSM would have everyone believe.

SilverPete wrote:

Needless to say, if there are any hiccups with the Chinese economy then things will go from bad to worse very quickly for the AUD.

Why wouldn't a Chinese hiccup affect the majority of Western economies? Why is Australia singled out?

SilverPete wrote:

With a growing population, increasing energy and food costs, a slowing economy, decaying infrastructure, accelerating unemployment and a critical lack of competitiveness against low cost and technologically progressive economies, we could see the quality of life in Australia begin to drop.

The growing population is not really an issue (it is easily managed by restricting new arrivals), the other issues you point to are significant problems when a government takes primary responsibility for the maintenance and provision of necessary services upon itself.


The woolgrower's target shall be the good thriving of his flock and its pastures, and so of himself and those whose livelihoods depend on his enterprise.
"The Woolgrower's Companion", 1906.

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#4 2014-09-11 08:50:32

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

mmm....shiney! wrote:

Why wouldn't a Chinese hiccup affect the majority of Western economies? Why is Australia singled out?

http://trademinister.gov.au/releases/Pa … 40521.aspx

Australia's exports to China were valued at $102 billion in 2013, an increase of $22 billion (28 per cent) on 2012.  China accounted for almost a third of Australia's total goods and services exports.

Japan was our second largest export market in 2013 with $50 billion followed by Republic of Korea ($21 billion), the United States ($16 billion) and India ($11 billion).


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#5 2014-09-11 08:51:50

Argentum
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

US wont be raising its rates; theyd be shooting themselves in the foot

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#6 2014-09-11 09:10:25

mmm....shiney!
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

willrocks wrote:
mmm....shiney! wrote:

Why wouldn't a Chinese hiccup affect the majority of Western economies? Why is Australia singled out?

http://trademinister.gov.au/releases/Pa … 40521.aspx

Australia's exports to China were valued at $102 billion in 2013, an increase of $22 billion (28 per cent) on 2012.  China accounted for almost a third of Australia's total goods and services exports.

Japan was our second largest export market in 2013 with $50 billion followed by Republic of Korea ($21 billion), the United States ($16 billion) and India ($11 billion).

I'm lazy, find me the EU/Chinese figures please.  smile


The woolgrower's target shall be the good thriving of his flock and its pastures, and so of himself and those whose livelihoods depend on his enterprise.
"The Woolgrower's Companion", 1906.

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#7 2014-09-11 09:11:28

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

mmm....shiney! wrote:
willrocks wrote:
mmm....shiney! wrote:

Why wouldn't a Chinese hiccup affect the majority of Western economies? Why is Australia singled out?

http://trademinister.gov.au/releases/Pa … 40521.aspx

Australia's exports to China were valued at $102 billion in 2013, an increase of $22 billion (28 per cent) on 2012.  China accounted for almost a third of Australia's total goods and services exports.

Japan was our second largest export market in 2013 with $50 billion followed by Republic of Korea ($21 billion), the United States ($16 billion) and India ($11 billion).

I'm lazy, find me the EU/Chinese figures please.  smile

I'm lazy too. That's why I didn't post them.


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#8 2014-09-11 09:16:07

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

Will this do?

''Australia is now the most China-dependent country in the world,'' says Tom Conley, an economics lecturer at Griffith University.

So while Germany sold 6 per cent of its total exports last year to China, the US sold 9 per cent, Brazil 19 per cent, Japan 20 per cent and South Korea 29 per cent, Australia sold 31 per cent to China, according to Bloomberg Finance.

http://www.smh.com.au/comment/risky-bus … 34hkz.html


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#9 2014-09-11 09:24:35

mmm....shiney!
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

No. Edit to add:

an economics lecturer at Griffith University

You quoted SMH. wink

How about wikipedia?

As of 2013 EU - Chinese trade makes the EU the largest trading partner of China and China the second largest trading partner of the EU.[2]

http://en.wikipedia.org/wiki/List_of_th … s_of_China

And this:

753_screen_shot_2014-09-11_at_112504_pm.png

Basically Mongolia is fkd. We are 16th fkd.

Last edited by mmm....shiney! (2014-09-11 09:26:55)


The woolgrower's target shall be the good thriving of his flock and its pastures, and so of himself and those whose livelihoods depend on his enterprise.
"The Woolgrower's Companion", 1906.

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#10 2014-09-11 09:42:51

JulieW
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

I read another fellow who said it was heading back to parity and above soon because of (insert reasons).

No-one knows. The experiment currently underway has no precedent. It's like a dinner set laid out on the Titanic. The water is lifting the plates and bowls and the table is tilting. What isn't sinking is rattling around knocking chips off each other.

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#11 2014-09-11 10:09:18

Yendor
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

Unemployment rose from 6.0% to 6.4% last month, and was expected to fall slightly to 6.3% this month.  But the figures released tonight say it's dropped to 6.1%, so better than expected.  Presumably there should be a bit of a bounce back tomorrow.

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#12 2014-09-11 10:27:18

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

mmm....shiney! wrote:

No. Edit to add:

an economics lecturer at Griffith University

You quoted SMH. wink

How about wikipedia?

As of 2013 EU - Chinese trade makes the EU the largest trading partner of China and China the second largest trading partner of the EU.[2]

http://en.wikipedia.org/wiki/List_of_th … s_of_China

And this:

http://forums.silverstackers.com/upload … 504_pm.png

Basically Mongolia is fkd. We are 16th fkd.

They can both be true. The EU may have the biggest trade volume with China, yet Australia has the largest percentage of GDP traded with China.


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#13 2014-09-11 16:41:37

SpacePete
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

mmm....shiney! wrote:
SilverPete wrote:

The US will be raising rates

Will it?

Eventually yes. The key is that they will do it out of step with Australia which will be negative for the AUD.

Next rates decision is imminent, but it's irrelevant if they raise them now or over the next several months and years. Longer term the probababilty is that the U.S. will be raising rates faster than Australia.

The S&P 500 is down 0.5 percent this week as investors focus on the timing of an interest-rate increase from the Federal Reserve. The Fed is gauging the strength of the economy as it winds down a bond-buying program and considers raising rates. Policy officials next meet Sept. 16-17.


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#14 2014-09-11 16:53:06

SpacePete
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

mmm....shiney! wrote:
SilverPete wrote:

while Australia is forced to keep rates on hold with the fall-off in mining investment hitting the economy hard

...we are expecting bumper coal exports this year, and there appears to be a variable response from mining companies in regards to employment ie those mines where workers are overpaid and full of fat lazy bastards are getting laid off while those that employ contractors are hiring. Like I said, I don't have my finger on the pulse but it is not doom and gloom across the sector as the MSM would have everyone believe.

The comment was specific to new mining investment, not short term exports. New investment is declining, and this is something the RBA takes into account when setting rates.

Additionally, resources like iron are hitting multi-year lows which doesn't help.


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#15 2014-09-11 17:14:05

tolly_67
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

I believe that we will see a fall for a period but in time we will surpass the u.s. Dollar.
International capital will be attracted to Australia for the same reason it is attracted to the u.s., I.e. Far away from the trouble.
As with the u.s. Domestic issues will be 2nd fiddle and factors in the economy will move contrary to what narrow minded economists insist it should.
You need to look at the Aussie dollar compared to all currencies. I would not be surprised to find that we are also moving up but at a lesser rate than the u.s. Dollar.
Comparing to one currency is not particularly smart.

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#16 2014-09-11 17:21:32

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

2012_Australia_Products_Export_Treemap.png
Source: wikipedia

Article%20Lead%20-%20wide6115529510erb71410388436215.png-620x349.png

6641_coal.png

Quarterly taxation revenue ($millions) since 1959.
512px-ABS-5206.0-AustralianNationalAccounts-NationalIncomeExpenditureProduct-TaxesCurrentPrices-TotalTaxes-A2301963V.svg.png


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#17 2014-09-11 17:35:03

SpacePete
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

^^^ good charts ^^^

Shows our heavy reliance on very low value-add exports at the expense of all other sectors. I notice in 2012 that at least vehicle exports stood out a little, something which we have now decided to kill which reduces again the few opportunities available in this nation to gain and to profit from engineering and high tech skills.

It's slow motion economic suicide.


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#18 2014-09-11 17:48:50

Revils
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

The charts are missing key exports of tourism and education

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#19 2014-09-11 17:54:18

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

Revils wrote:

The charts are missing key exports of tourism and education

Probably because they are insignificant.

In the financial year 2010–11, the tourism industry represented 2.5% of Australia's GDP, at a value of about $35 billion to the national economy

https://en.wikipedia.org/wiki/Economy_of_Australia

Education $14.461 billion in 2012-2013.
https://aei.gov.au/research/Research-Sn … 3%20FY.pdf


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#20 2014-09-11 18:25:40

Holdfast
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

12 Nov 1985 AUD vs USD was 0.6575

For those folk who are interested, you can view official historical data of the AUD here:


http://www.rba.gov.au/statistics/histor … ange-rates

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#21 2014-09-11 18:31:50

mmm....shiney!
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

@SilverPete, I couldn't quote you for some reason hmm

The comment was specific to new mining investment, not short term exports. New investment is declining, and this is something the RBA takes into account when setting rates.

I think in the main it's because the huge amount of mining equipment required for future expansion has been purchased already.


The woolgrower's target shall be the good thriving of his flock and its pastures, and so of himself and those whose livelihoods depend on his enterprise.
"The Woolgrower's Companion", 1906.

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#22 2014-09-11 20:43:58

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

Holdfast wrote:

12 Nov 1985 AUD vs USD was 0.6575

For those folk who are interested, you can view official historical data of the AUD here:


http://www.rba.gov.au/statistics/histor … ange-rates

No need to go back to 1985. Six years ago, in 2008, the AUD only purchased 0.60492 USD (link).


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#23 2014-09-12 04:52:34

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

Some more charts I found interesting - 1995 vs 2010:

Countries Australia exports to in 1995 (top) and 2010 (bottom)
tree_map_export_aus_show_all_1995.png?w=382&h=311

tree_map_export_aus_show_all_2010.png?w=382&h=311


Australian Exports in 1995 (top) and 2010 (bottom)
tree_map_export_aus_all_show_1995.png?w=384&h=312

tree_map_export_aus_all_show_2010.png?w=384&h=312

Australian Imports in 1995 (top) and 2010 (bottom)
tree_map_import_aus_all_show_1995.png?w=384&h=312

tree_map_import_aus_all_show_2010.png?w=384&h=312

Source: http://ckrao.wordpress.com/2012/06/26/e … y-country/


"You can ignore reality, but you cannot ignore the consequences of ignoring reality." - Ayn Rand

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#24 2014-09-12 21:56:38

bordsilver
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

SilverPete wrote:

^^^ good charts ^^^

Shows our heavy reliance on very low value-add exports at the expense of all other sectors. I notice in 2012 that at least vehicle exports stood out a little, something which we have now decided to kill which reduces again the few opportunities available in this nation to gain and to profit from engineering and high tech skills.

It's slow motion economic suicide.

The old notions of a linear value adding chain are becoming more and more meaningless as the complexity of the capital chain has increased overtime and B2B transactions between different "industries" become more and more incestuous. I'd argue that Australia's exploration and mining industry is one of most highly skilled and high tech industries on the planet. The companies have moved far beyond panning in rivers or using basic picks and shovels. The various cryogenic technologies involved in manufacturing, handling and transporting LNG are cutting edge. The seismic, imaging, geologic, drilling etc technologies involved in exploration are very sophisticated. The skills and technologies involved in the logistics and physical execution of economically extracting gold from deep underground mines from ore grades of 1-2 grams/tonne aren't to be sneezed at. Many of the developments then spill over to other sectors of the economy.

Edit: The same goes for much of the agriculture industry although to a lesser extent than mining.

Last edited by bordsilver (2014-09-12 21:57:34)


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#25 2014-09-12 23:36:23

willrocks
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Re: Aussie dollar to drop below 66c - "benign" collapse ahead

China scraps demand for iron ore
September 11, 2014 9:45AM

There is more than one reason iron-ore miners and steel producers need to scrap the idea that Chinese demand will save them.

The five-year nadir the price of iron ore reached last week reminded investors that the world's biggest consumer of iron ore, China, is slowing down and doesn't need as much ore to forge into steel. There is another thing to be mindful of: China can soon meet part of its demand by turning to its own scrap metal.

China so far hasn't recycled too many of its old cars, appliances or construction material for fresh use in steel, simply because it didn't have many metallic objects idling around. But China's breakneck growth in the past decade should mean more scrap is available.

For instance, cars can be recycled 5 years to 10 years after production, says CLSA's Ian Roper. So the vehicles purchased by consumers in the automotive buying boom that started in 2009 may soon make their way to steel furnaces. China last year boasted 127 million registered cars and trucks on its roads, from 27 million a decade ago, according to data provider CEIC.
The new local supply of scrap is already making its presence felt in trade. Imports of iron-related scrap between January and July fell by nearly half from last year. And they are a fifth of the amount in 2009, when China needed all the steel it could get as the government sought to stimulate the economy.

Mr. Roper estimates that by 2020, China's total scrap supply will reach 200 million tons a year, or about a quarter of what the Chinese government thinks its peak steel consumption will be. Scrap accounted for just 18 per cent of steel use last year.

More scrap should mean that China needs less iron ore to process into new steel, especially because a 40 per cent export duty on scrap keeps this recycled material at home. Of course, China could process that scrap into finished products that it exports abroad, so more Chinese scrap could succeed in hurting steel prices worldwide.

Iron-ore miners and steelmakers may wish that China's old cars and washing machines just rust away. In reality, they are here to stay in one form or another.

http://www.theaustralian.com.au/busines … 7054864276

Last edited by willrocks (2014-09-12 23:36:57)


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