Lightning risk to the Australian dollar

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Having been involved in resources financing many years ago, I find the costs quoted now for these projects impossible to comprehend. (Lightning risk to the Australian dollar, November 21)
Nevertheless, much of the equipment for LNG projects are actually imported from overseas, and therefore the capital costs of these items should be competitive and cheaper, given the high exchange rate. Most commentators say the opposite, that the high dollar drives up costs. This needs explanation.
I still think that the mining industry is responsible for its own problems. As an industry, they should have gone on a capital strike to control costs. Instead they fed the beast, and now complain of the consequences.
I guess it shows that they have made so much money they no longer need to work, unlike the rest of us.
We'll see, but I think the chances of the UAD at 50c are nil while Australia refuses to join in the global currency printing mania, and that could go on indefinitely the way things are going (Lightning risk to the Australian dollar, November 21).
I also agree with Villi - the explanation often peddled that the high dollar boosts costs is very simplistic and I'd often expect the reverse to be true.
The problems we have here are partially inflicted by overseas central banks (or our refusal to get involved) and mostly our own fault:
- refusing to have a proper discussion on tax reform due to the political hoodoo of increasing the GST
-government induced distortions in the economy leading to skills shortages in some areas. Listening to Conroy preach on competitiveness on one hand while bailing out dinosaur industries that exacerbate the problem and throws wages out of kilter/boosts inflation (both by supporting the heavily unionised car industry and their perks along with causing a labour supply deficit where it's needed) is laughable.
etc.......etc.......
We need some leadership and quick.
Good points, glad we have issued kangaroo bonds, that should cushion a bit the currency fall, together with real estate investors in Australia, and the large end of town practising happy loss making businesses type of activities in Australia with the current currency value (Lightning risk to the Australian dollar, November 21).
The worry with the currency fall is the etiquettes in the shops, as we import most things.
We still have plenty of things to develop in the future, assuming people in our parliament learn about resource development policy instead of robbing Peter to dress Paul and increasing taxes to feed our ultra socialist hoot nannies fanciful projects.
We need 50 more Glenn Stevens and Reserve Bank MIB in our parliament and no Rob Oakeshott or other tax 101 zombies, not speaking of our budget astrophysicists.
Robert, it would be useful if you could devote an article explaining what happened in the post 1950s boom Australia. (Lightning risk to the Australian dollar, November 21) Many of us don't have that hindsight. Secondly would it be so bad if all the adjustment you are talking about took place via the currency? After all didn't the dollar do the same thing in 2008/09 when it fell to 60c.
Robert (Lightning risk to the Australian dollar, November 21),
In the last couple of weeks we've had alarming reports about global warming and burning fossil fuels from major influence groups: insurer (Munich Re), consulting firm (PWC), bank (World Bank), International Energy Agency (IEA), Hedge fund person (Jeremy Grantham), high profile science journal (Nature).
These reports are remarkably consistent as the science is so compelling. They indicate we are on track to unthinkable temperature rise (4-6C) and they all say we must stop. The estimates vary but it is around 80% of fossil fuel reserves that must not to be developed if we are to have any chance of avoiding catastrophic climate change.
I suggest that this reality needs to be part of any discussion about Australia's future economic position.
Govt and Australian business continue to live in denial. There is change in the air and we ignore it at our peril.
How right you are (Lightning risk to the Australian dollar, November 21).
Having worked for one of the big miners for 30years,it became mind boggling for about 7Years up to 2008 how, one got the impression they totally disregarded costs.
Not only construction,but every day operating costs.
Single mill$ engineering balls ups ,no questions asked.
What used to be stright forward projects blew out into huge costs on the safety bandwagon.
Safety and engineering dep. tripled for no apparent or good reason.
Contractors quotes arrived at a figure and doubled it or better.
The SAP purchase system became a fee for all for those who were that way inclined if it was under $1000 purchase
Never ending safety meetings for the troops in the middle of shutdowns.
All those issues were always unsustainable nonsense,but from what I hear not much has changed.
All self inflicted nonsense,and it appears things have to get a lot tougher before the worm turns.
This should create the most positive change environment for government and governance in Australia (Lightning risk to the Australian dollar, November 21).
Combined with the ageing of the population and the dramatic technological changes in health the states face an imminent cash crisis.
A system combining all the service provision of the three levels of government is needed so that tens of thousands of public sector processing people can be removed. This is the real reason for the NBN and why no business plan or CBA was ever done.
It will coincide with the downturn in the economy and we will make the european problems look simple.
Think of the effects on CBD commercial property and the stress tests they applied to the banks will be seen as far too little far too late.
Seat belts will be needed on the stockmarket effect and the social disruption
Scenario does not feel good but then maybe the emergence of the chinese middle class will just save the lucky country.
Quite interesting graphs (Lightning risk to the Australian dollar, November 21).
In addition, portfolio capital flows can reverse very quickly and are highly sensitive to changes in macroeconomic fundamentals.
The real exchange rate in the long-run will revert to its PPP and the Australian dollar seems to be 30% overvalued in this regard.
This article examines in more detail the relationship between real exchange rates and terms of trade:
www.cepii.fr/anglaisgraph/workpap/pdf/2008/wp2008-32.pdf
Robert (Lightning risk to the Australian dollar, November 21),
You are right when you say that Australian projects are totally uneconomic unless they are constructed near existing facilities. We need to understand that the Americans have doing the hard yards over the past 30 years during which time the private railroads have spent 480 billion dollars in redeveloping/upgrading their networks. I have just had a 4 week tour of the US (whilst our dollar is at parity) and what I saw in productivity staggered me. I realised that we were in deep trouble. Their cost of living is half that of ours and hence their wages are lower mainly because of their magnificent land transport system being so productive and delivering goods and raw materials in all directions at a fraction of the cost that we experience. They have the most productive freight system in the world.
It is not an option for us to just rely on our dollar falling to 50c; imagine the economic strife that a doubling of the cost of our fuel would entail! No, we have to do the hard yards now and get serious about our land transport infrastructure, particularly rail as we are are in a nation of huge distances (like the Americans) and surrounded by wide blue oceans. Our quest must be to lower our cost of living and hence production through massive increases in productivity.
Buy the Yuan & the Rupee (Lightning risk to the Australian dollar, November 21).
Glad to see many are waking up Robert(Lightning Risk to the Australian Dollar).
Currently it is Australia's AAA rating that is causing an increase in the buying of Aussie government bonds via foreign investment.There are few stable AAA rated countries in existence.
It has risen from 15%-75% today.
With Interest rates also many percentage points higher than countries at near zero and you can see why the AUD is high.
Once the mining boom drops off as Robert suggests in 2014-15, I believe the USA will pick up for the reasons you mention. Namely they are going to be less energy dependant and have already suffered heavily post GFC.They also have huge employment and growth prospects in Energy, Finance and Manufacturing.
We sell Minerals and Lattes. The huge inflows that have propped up the AUD can easily drop just as quickly. Those who are long the AUD could easily be caught out. As buffett says you only work out who is swimming naked when the tide goes out.
If mining investment drops then the RBA will be forced to lower rates to stimulate other areas of the economy. That will put pressure on the AUD as well as the potential that the government may be forced to spend and go into deficit as they did during the GFC. The AAA rating is not guaranteed.
How quickly people forget that Australia was called an "old economy" as recently as 2001 whilst the dollar bounced between 50-60c.
If it does happen again no one can say they did not see it coming.
Imagine if we had treasury advising the RBA and the Treasuror advising Treasury.
Sheesh! we'd probably have an AUD higher than parity, a balanced budget and a country run by whales (Lightning risk to the Australian dollar, November 21).
Australia could once again have thriving export industries,if the AUD was to fall to 50c. However, that seems too far fetched for those of us foreigners who are having to pay through the nose to acquire Australian goods and services.The Dutch disease is too ingrained,and surely lightening won't strike a third time. (Lightning risk to the Australian dollar, November 21).
For the last 10 years govts have governed in denial, both in Howard Liberal's time and the following Labor time (Lightning risk to the Australian dollar, November 22).
The maladjustments are now in plain view, even to our politicians, and neither political party or the RBA has any idea how to fix the grim and uncomfortably near sovereign and trade risks Australia faces.
Politicians continue kicking the can down the road, with only two long term policies: one the 'hope' policy for the future of its citizens; two, the defined benefits super and other post-political perks policy for politicians.