Saturday, November 06, 2010

$US1.02 may be just the start

The Reserve Bank is bracing itself for an even higher Australian dollar.

Ahead of updated budget forecasts due as soon as next week the Reserve Bank has produced produced its own forecasts out to 2013 based on the "technical assumption" that the Aussie remains at $US1.00.

However it warns there is risk it will climb even higher, more deeply hurting import-competing and export-oriented industries "such as manufacturing, farming, tourism and education".

To date the rising Aussie has helped stabilise the economy, but further increases are in prospect, some "unrelated" to fundamentals.

It expects even higher $US iron ore prices on top of the 110 per cent increase since mid 2009. Spot prices, which typically lead contract prices, were up 10 per cent in November...

Mining investment - already high - is set to be ramped up further. with engineering projects worth 20 per cent of GDP already in the pipeline and other coal, iron ore and LNG projects in various stages of planning.

Elsewhere it sees "a degree of caution," with non-resource export growth expected to be "modest" as a result of the high dollar and changes in the rules relating to overseas students.

The Bank has wound back both its growth and inflation forecasts in recognition of the higher dollar, and says inflation should remain contained until late 2012 if as the market expects there are only two more rate hikes.

Published in today's Age

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