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the Aussie down with the Greenback on the up
TICKY FULLERTON, PRESENTER: TheWoolrich vest, Aussie dollar's below parity with the greenback for the first time in 11 months, having lost 3 per cent over the past week.
However, opinions are divided on whether this is the start of a major correction.
NEAL WOOLRICH, REPORTER: It's not just tradeexposed industries worrying about the stubbornly high dollar. These days, the Government is in on the act as well.
WAYNE SWAN, TREASURER (Friday):Woolrich london That puts a squeeze on profitability across our economy and we are living with the consequences of that now.
NEAL WOOLRICH: But now, signs are emerging that the dollar's run might be coming to an end, after it lost 3 per cent against the US dollar over the past week and fell below parity with the greenback for the first time in nearly a year.
ALAN OSTER, CHIEF ECONOMIST, NAB: Woolrich vest,What's really happened is that there's been a wellplaced source in the Wall Street Journal who's talking about the fact that the Fed has got a schedule as to when they stop QE.
NEAL WOOLRICH: At any time there are a mix of cyclical and structural factors working on the dollar. On the cyclical side, it's commodity prices, the outlook for global growth and the interest rate differential between Australia and the rest of the world.
Lately, all three of those should've been putting downward pressure on the dollar. But they've been overwhelmed or at least counterbalanced by a bigger structural factor, quantitative easing, where central banks have lowered interest rates and printed money, pushing cheap credit into countries like Australia.
FRANK UHLENBRUCH, INVESTMENT STRATEGIST, Woolrich mountain parka, PERENNIAL FIXED INTEREST: So there's a global search for yield and Australia is a very attractive destination for offering higher returns. So there is a lot of interest in Australian dollar assets.
NEAL WOOLRICH: And NAB's Alan Oster says the strength of the Chinese economy is a big part of the story as well.
ALAN OSTER: If you want to get into China, the way you do it is through Australia,Woolrich mountain parka, it's incredibly correlated with China, triple A and you get some interest rates, so that's what it's all about.
NEAL WOOLRICH: Last week the dollar fell more than half a cent against the greenback on Tuesday when the Reserve Bank cut interest rates, then made that up on Thursday after unexpectedly strong employment figures. However, the slide resumed on Friday and over the weekend, thanks to those US quantitative easing rumours. But opinions are divided on where the currency will go next.
ALAN OSTER: To me, I think parity plus or minus five is roughly the range that we should be looking at. I think there's a chance that there's an upside too and the upside is all about food and China.
FRANK UHLENBRUCH: In the next 12 to 18 months,Woolrich canada, I think we could see it under the 90s, but that would need the quantitative easing regime to end and monetary conditions to begin normalising in the US.
NEAL WOOLRICH: Woolrich london But even if that did happen, there's no guarantee it would give longsuffering industries the fillip they need.
FRANK UHLENBRUCH: If the adjustment comes against a backdrop where the global economy's going a little bit stronger, those export sectors could be going quite well because the global economy's going stronger.
ALAN OSTER: It helps, as does lowering your interest rate, Woolrich canada, because that lowers your cost of finance. But, you know, if you're way over in terms of your wages costs, then there's not a lot you can do.
NEAL WOOLRICH: Meaning the painful adjustments underway in the economy won't necessarily stop, even if the dollar returns to a more normal level around the 75 US cent mark.
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