Economy

Dollar soars, stocks fall: Economy roundup

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The faltering US mortgage market is having two quite different affects on the Australian economy, sending the Australian dollar to record highs even while it pulls the sharemarket lower.

The faltering US mortgage market is having two quite different affects on the Australian economy, sending the Australian dollar to record highs even while it pulls the sharemarket lower.

The Australian dollar is trading at a new 25-year high of US97.40c at midday today and appears to have found a new level around the US97c mark.

The soaring dollar is a product of the relative strength of the Australian and US economies. With the US’s wobbles now looking entrenched, the Australian economy is looking more attractive to currency traders – and decidedly less appealing to Australian exporters.

The sharemarket, on the other hand, doesn’t like the idea of a weak US, and the banking sector in particular is worried about the global credit crisis. Hence the 1.4% fall in the S&P/ASX200 to 4854.0 by midday today.

Whoever said economics doesn’t make sense.

No doubt the Reserve Bank of Australia understands it all, and it appears to be relatively comfortable with that part of the economy it is responsible for. Minutes from the last RBA board meeting released today suggest the central bank is cautiously optimistic it has done enough to keep rates under control.

“On balance, while members remained concerned about the current rate of inflation and the uncertainties about the outlook, the increasing signs that demand was slowing suggested that the existing policy setting was exerting the appropriate degree of restraint. Provided demand continued to evolve as expected, inflation was likely to decline over time,” the minutes state.

That view won’t be shaken by building and construction data from the March 2008 quarter released today. The value of new building activity declined by 1% seasonally adjusted in the quarter – a sign of rates biting – while the construction sector, which is more resources exposed, lifted by 2.3%.

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