Wednesday, 29 August 2012

Australian dollar flying high, but for how long?

"I see clear signs that the investment pipeline in Australia is starting to weaken and the peak for resource company capital expenditure could be seen some time in 2013. I see signs that rates may need to be cut further in Australia. I see some promising signs that Europe is finally getting on top of the issues it faces. I see signs that demand for the Australian dollar may be becoming sated.
A story I like to tell about this demand for the Australian dollar surrounds the Japanese household and a character I have followed for many years now, Mrs Watanabe. She is the holder of the Japanese purse strings, she represents the Japanese housewives who deal in foreign exchange. Mrs Watanabe is the one that calls the shots on the incredible wealth held within the Japanese household. She is the one that buys and sell financial assets. She is the one often that moves financial markets in Tokyo. What is often not fully appreciated is the sheer size of the purse she controls. According to BoJ data, the Japanese household has an incredible ¥1575tn of financial assets ($AU19tn) with 49 per cent of this sitting in currency and deposits earning close to zero interest. What Mrs Watanabe does with this money moves markets."

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