Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

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Financial

Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

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Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

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Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

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Categorized | Currencies

Australia: I should be so lucky


Posted on September 30, 2014

The lucky country. The 1964 book that provided the nickname for Australia was, in fact, a critique of the nation. In the past decade of Chinese growth, it has made sense to interpret the moniker unironically.

    But that luck is changing. China’s growth is slowing. The demand for commodities that has sucked money into Australia is not as strong as it was. The halo effect on the rest of the economy is dimming. Interest rates have slipped and with them the Australian dollar.

    Although attached to the 10th largest global economy, the Aussie is the fifth most actively traded currency, according to the Bank for International Settlements. It has been punching above its weight as a proxy for Chinese growth.

    In many countries, a weaker currency might be good for exports. But aside from commodities, Australia has few listed exporters. A National Australia Bank survey released last week showed that two-way trade in goods and services accounted for two-fifths of GDP in 2013. This trade is dominated by imports.

    And despite the years of favourable exchange rates, the country’s oligopolistic, cosseted industries did not take the opportunity to build their defences. Department stores such as Myer and David Jones indulged in fat margins, attracting new entrants. Meanwhile, Australia’s four big banks, led by expensive favourite Commonwealth Bank of Australia, rode the house price boom. They now face risks from the mortgage market, according to the central bank – which has hinted at cooling measures.

    Yet despite the poor backdrop, the Aussie is the best-performing currency in the G10 this year against the US dollar. The benchmark Australian index, the S&P/ASX 200, has posted a flat total return this year in US dollar terms against up to 5 per cent for the MSCI World index.

    Given the fickleness of fortune, the reaction seems mild. Australia is pushing its luck.

    Tweet the Lex team at @FTLex