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> This resulted in heavy demand for Australian dollars, and at its peak in 2013 1 AUD was worth about 1.05 USD. One of the main reasons the AUD remained at suc

by jussij 9y ago

> This resulted in heavy demand for Australian dollars, and at its peak in 2013 1 AUD was worth about 1.05 USD. One of the main reasons the AUD remained at such high levels was because of the carry trade. http://www.abc.net.au/news/2011-05-09/carrying-the-australian-dollar-higher/2705140 http://www.abc.net.au/news/2011-05-09/carrying-the-australia... From the link below you can see the Reserve Bank of Australia kept interest rates very high during that period: http://www.rba.gov.au/statistics/cash-rate/ http://www.rba.gov.au/statistics/cash-rate/ That allowed big multinational banks to borrow massive amounts of money in one country at a near zero interest rate and park that cash in Australia to get a guaranteed 4% return on those billions. That create the high demand for the AUD which drove up it's price. The RBA was asleep at the wheel as it should have driven down that cash rate much faster and far sooner than it did. Only after they finally moved and started cutting the interest rate did the dollar fall to the levels we see today. Unfortunately, they now find themselves in a bit of a mess, since the economy really needs another rate cut to help repair the damage caused by that high dollar. However they can't do that because it would add fuel to an already over heated property market, which is starting to look a lot like a bubble. If they had moved earlier, the local manufacturing/export/tourist industries would be much stronger today and the RBA would in fact now be in a position to raise rates, something that is desperately need to take heat out of the property bubble.

chris_wot 9y ago
They are between a rock and a hard place. If the housing bubble burst, it would be far worse than a high Australian dollar. Unfortunately, we needed our bubble burst nearly a decade ago. When it bursts now, the pain is going to be incalculable.
- dis-sys 9y ago
  this is how a stone age economy works - you sell your rocks (mining) and bricks (real estate) to sustain your way of life.
dageshi 9y ago
Wouldn't driving down interest rates at that point have pumped up the housing bubble even more back then? Ultimately there's only so much you can do with interest rates.
- jussij 9y ago
  I think it is all in the timing. Consider this chart of the AUD to the USD over that time: http://www.xe.com/currencycharts/?from=AUD&to=USD&view=10Y http://www.xe.com/currencycharts/?from=AUD&to=USD&view=10Y From the RBA interest rate chart linked earlier you get these maximum yearly numbers over the last decade: Year Rate AUD 2008 7.25 0.69 2009 3.00 0.91 2010 4.75 0.98 2011 4.75 1.10 2012 4.25 1.51 2013 3.00 1.50 2014 2.50 0.94 2017 1.50 0.80 As the numbers show, before the GFC and even after the GFC through to 2014 (some 7 years) the RBA kept the rates very high. Thanks to those high rates the carry trade kept the AUD high, but those high rates also put a dampener on the housing market. Now during that time most of Australia was struggling, but two mining states (WA, QLD) where doing extremely. China had created a commodities bubble that saw iron ore prices well over the $100 a tonne. By 2014 the mining bubble had bursts, so much so that WA, the once booming state was on it's way to recession. Only then does the RBA then decides to move on rates. However those 7 years of high AUD has really hurt the local export industry, the tourist sector and the agricultural sector industry. But even after 2014 the RBA is still slow to cut so the carry trade persists, keeping the AUD stubbornly high. However, with the rate now at 2.50% and going even lower in the years to come, mortgages are now very cheap and only getting cheaper. Say goodbye to the mining boom and welcome to the housing bubble. Might point would be, if they had cut faster after the GFC they would have kept alive the other non mining sectors and then, if they had seen a problem developing in the housing market they could have raised rates to deal with the issue. Over that time they did the exact opposite.
  - dageshi 9y ago
    Looking from the outside I'll be honest you can't have everything. One of the primary aims of a central bank is to control inflation which it looks like the bank has done pretty well. https://www.rateinflation.com/inflation-rate/australia-historical-inflation-rate https://www.rateinflation.com/inflation-rate/australia-histo... In hindsight it's easy to say what should be done but they really look like they've done a pretty decent job. No economy grows forever and Australia has had a very good run in recent history.

by jussij 9y ago

chris_wot 9y ago

They are between a rock and a hard place. If the housing bubble burst, it would be far worse than a high Australian dollar. Unfortunately, we needed our bubble burst nearly a decade ago. When it bursts now, the pain is going to be incalculable.

dis-sys 9y ago
this is how a stone age economy works - you sell your rocks (mining) and bricks (real estate) to sustain your way of life.

dageshi 9y ago

Wouldn't driving down interest rates at that point have pumped up the housing bubble even more back then? Ultimately there's only so much you can do with interest rates.

jussij 9y ago
I think it is all in the timing. Consider this chart of the AUD to the USD over that time: http://www.xe.com/currencycharts/?from=AUD&to=USD&view=10Y http://www.xe.com/currencycharts/?from=AUD&to=USD&view=10Y From the RBA interest rate chart linked earlier you get these maximum yearly numbers over the last decade: Year Rate AUD 2008 7.25 0.69 2009 3.00 0.91 2010 4.75 0.98 2011 4.75 1.10 2012 4.25 1.51 2013 3.00 1.50 2014 2.50 0.94 2017 1.50 0.80 As the numbers show, before the GFC and even after the GFC through to 2014 (some 7 years) the RBA kept the rates very high. Thanks to those high rates the carry trade kept the AUD high, but those high rates also put a dampener on the housing market. Now during that time most of Australia was struggling, but two mining states (WA, QLD) where doing extremely. China had created a commodities bubble that saw iron ore prices well over the $100 a tonne. By 2014 the mining bubble had bursts, so much so that WA, the once booming state was on it's way to recession. Only then does the RBA then decides to move on rates. However those 7 years of high AUD has really hurt the local export industry, the tourist sector and the agricultural sector industry. But even after 2014 the RBA is still slow to cut so the carry trade persists, keeping the AUD stubbornly high. However, with the rate now at 2.50% and going even lower in the years to come, mortgages are now very cheap and only getting cheaper. Say goodbye to the mining boom and welcome to the housing bubble. Might point would be, if they had cut faster after the GFC they would have kept alive the other non mining sectors and then, if they had seen a problem developing in the housing market they could have raised rates to deal with the issue. Over that time they did the exact opposite.
- dageshi 9y ago
  Looking from the outside I'll be honest you can't have everything. One of the primary aims of a central bank is to control inflation which it looks like the bank has done pretty well. https://www.rateinflation.com/inflation-rate/australia-historical-inflation-rate https://www.rateinflation.com/inflation-rate/australia-histo... In hindsight it's easy to say what should be done but they really look like they've done a pretty decent job. No economy grows forever and Australia has had a very good run in recent history.