Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Alex who wrote (23403)	11/25/1998 8:22:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116752

$A/commodities divorce 'temporary' By Andreea Papuc The Australian dollar has decoupled from commodity prices, but this is a short-term aberration, and the currency is due for a correction, analysts say. The influential Commodity Research Bureau index is close to 22-year lows, yet the $A is defying the bears and enjoying solid support at US64¢ mainly because of some direct investment flows into Australia and interest rates here being held above US rates. The CRB fell 0.12 to 196.62 Tuesday. The last time the CRB nudged these levels -- when it fell to a 22-year low of 195.18 in late August -- the $A was heading towards its all-time low of US55.30¢. The CRB is by no means representative of Australia's commodity export mix, but it does hold sway in the markets because it tracks the behaviour of commodity prices generally. Given the historic correlation between the $A and commodities, a correction in the currency seems imminent, according to Mr Peter Clay, fixed income strategist at ABN AMRO. He has tracked the correlation between the $A and commodity prices since December 1995, and has found that six out of seven times the $A corrected back to the CRB trajectory, with one exception in March 1996. In those six instances, the $A fell more than US1¢ on average for the currency to re-establish the correlation. "In other words, it appears that the $A has a habit of running ahead of commodity prices before it returns to re-establish its more common positive correlation with commodity prices," Mr Clay said. "In the current situation, this would require a US2¢ fall in the $A against the $US over the coming fortnight." Mr Clifford Bennett, senior strategist at BNP Australia, agrees that $A strength in the face of falling commodity prices will be short-lived. The fall in the $A had protected the domestic economy, he said. The $A declined 32 per cent, from US82¢ to US55¢ over the past two years. At US64¢, the fall is 22 per cent. Over the same period, the CRB has fallen 23 per cent. "To some extent the $A is now in line with commodity prices, but export volumes remain under a cloud, and those commodity prices themselves remain in a bear trend," Mr Bennett said. "The $A has probably rebounded about as far as it can. "The recent apparent decoupling of $A from commodity price influences, which reflect the state and health of the global economy, may be short-lived, in which case the $A strength at current levels may also be short-lived." Mr Tim Moloney, currency strategist at Deutsche Bank, said the $A was being underpinned by direct investment into Australia recently, as well as a stable gold price. While the CRB had declined, gold had hovered around $US296. "You've got this direct equity inflow into Australia on takeover speculation and on the heels of Telstra and the Optus floats," he said. Mr Moloney wonders about the divergence between US equity markets and commodity prices. The Dow Jones Industrial Average closed at a record high above 9000 on Monday. "Who is wrong?" he said. "If commodity prices and US markets continue to diverge, there could be one of two things. Are the US equity markets missing something, or alternatively are they signalling that the US economy has held up very well, but the outlook for economies elsewhere is still poor?" Mr Peter Pontikis, technical strategist at Westpac, said the US equity market was reacting to the recent cuts in US interest rates. "People are reading too much into it," he said. "It was an interest rate-driven response rather than an earnings-driven response." afr.com.au