Australian Dollar Tumbles on RBA Cash Rate Cut

The Australian dollar tumbled by more than one and a half cents on the Reserve Bank of Australia's decision to cut the cash rate to a historic new low.

The local currency hit a fresh five-and-a-half year low to US76.57¢ on Tuesday afternoon, down from US78.16¢ just before the release. The reaction followed the central bank's decision to cut the cash rate by 25 basis points to 2.25 per cent after 18 months of holding the rate steady.

Despite the sharp fall in the Aussie dollar – nearly 20 per cent in the past six months – the Reserve Bank said the exchange rate remained high. 

"The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies," the Reserve Bank said in its statement on monetary policy.

"It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

Market forecasts the exchange rate to continue to fall. On Commonwealth Bank of Australia figures, the local currency is expected to fall towards 73¢ by June this year, but the bank's senior currency strategist Elias Haddad said there was a risk the Australian dollar will fall even further and the bank will be revising its forecast.

"We expect a further downside movement here, not just against the US dollar but also on the crosses, due to narrowing interest rate, falling commodity prices and still unimpressive Chinese economic data," Mr Haddad said.

National Australia Bank will also be revising its forecast in light of Tuesday's tumble. Back in November last year the bank forecast the Australian dollar to hit US78¢ by the end of 2015. NAB global co-head of FX strategy Ray Attrill said the bank will be reviewing its forecast after the central bank releases its statement on monetary policy on Friday.

"The market already priced in the expectations of a rate cut, but the currency still lost. It shows the market is still prepared to sell," Mr Attrill said.

In an exclusive interview with The Australian Financial Review in December last year, Reserve Bank governor Glenn Stevens said an appropriate level for the Australian dollar would be US75¢.

Mr Attrill said the currency could be heading towards the US70¢ mark, given the fall in the commodity prices since December.

"You can argue, if US75¢ was about the right level in mid-December, and taking into account what's happened with commodity prices generally, maybe US70¢ is more appropriate," he said.

A batch of data fuelled RBA jitters earlier on Tuesday. The Australian dollar jumped by more than third of a cent to US78.30¢ after slightly better-than-expected economic data was released: building approvals slipped 3.3 per cent in December (better than the predictions of a 5 per cent slide) and trade deficit narrowed to $436 million in December, beating expectation of more than $850 million.

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Don't Get Burnt by The Property Market

Don't get burnt by the property market

How seriously should property investors take recent warnings that Australian property prices are 20 per cent to 30 per cent higher than they should be and that there is an impending apartment glut in 2017? 

Whatever the fundamental basis for these and similar warnings, existing and new property investors need to be aware of the potential downside.

The basic issue is to understand the risks involved with  investments already owned or being purchased. While less popular for purchases of listed assets including shares and property trusts as well as managed funds, large levels of borrowing are widely used to help acquire direct property holdings.

This high level of gearing helps to drive up property prices in good times such as the present and down when markets turn down, for example due to increased levels of vacancies and/or falling rents. Currently, strong foreign buying interest, low interest rates and a shortage of available stock is forcing and encouraging new investors to bid up prices.

While it may be some time off, a similar downward ratchet in prices will start when interest rates rise again and when new housing developments result in an oversupply in the major locations. Compared with share market falls which can be brutal and swift, downward property price movements are generally protracted as sellers holding out for higher prices ultimately are forced to lower their expectations.

A special feature of the apartment market can, however, result in distressed forced sales. This is when a large number of off-the-plan sales negotiated before or during construction fall through. A recent example of this occurring is the setback in the Canberra apartment market due to over-supply and reduced public sector employment opportunities.

In this situation, a significant percentage of off-the-plan  buyers were either unable or unwilling to complete their purchases. The resulting forced sales depressed asset valuations and made it more difficult for heavily geared purchasers to obtain credit to meet their commitments.

The key message for individual investors is to be aware of these and other risks before entering into off-the-plan contracts. While one benefit of off-the-plan purchases is what can often be a lengthy time lag before money is required to complete the purchase, this can be a negative if personal circumstances change or property valuations fall before the settlement date..

The chances of both of these changes increase with the amount of time before completion. The risks are also greater in situations such as the present time when contracts are entered into in a buoyant market. So even if the warnings of problems ahead don't prove accurate, they are a timely reminder to avoid becoming over-committed to a future large heavily geared property purchase.

AustralianSuper to Manage Equity In-house

The Australian has reported that AustralianSuper, Australia's largest industry superfund, is planning to manage some of its $15 billion of Australian equity investments, which are currently managed externally.

AustralianSuper head of equities, Innes McKeand told The Australian that the fund was 'in the process of putting a platform in place' to oversee some of its Australian equity investments.
The move would be a blow to the funds management industry which is already struggling with low volumes, soft equity markets and fund outflows.

The moves come as active equities managers face pressure to perform in the face of a shrinking number of investment mandates, driven by super fund mergers and a shift to other asset classes.
Mr McKeand told The Australian that while AustralianSuper would continue to award mandates to external managers, its internal platform was being built 'to cope with a significant amount of funds' to be run by fewer than 10 fund managers.

It is thought that other funds such as UniSuper and Telstra Super are considering a similar move due to their build-up of an in-house stock-picking team.

Internet Australia: Costs 'Could Rise' With NBN Plan Switch - Internet Australia

The chairman of NBN Co, Harrison Young, hopes to broaden the debate about the merits and cost of the government's National Broadband Network in a public speech today.

Mr Young will argue that changing the network design to the Coalition's preferred "mix of technologies" could increase the long-term costs of the network and fail to deliver key policy targets, at a forum about “Australia's Digital Future" and hosted by the Committee for Economic Development of Australia (CEDA) in Sydney.

Mr Young's speech outlines three "interwoven" aspects of the NBN – a super-fast broadband network that will cost about $40 billion to construct - the telecommunications market structure, infrastructure and future applications and benefits of the network, according to a draft copy obtained by Business Day.

While saying he wants to stay out of the debate about whether fibre to the premises is needed when fibre to the node technology exists, Mr Young says that “if you retain Telstra infrastructure as part of the national broadband network, even just the last bit, you will not have accomplished the separation of [Telstra] wholesale from retail that was a major objective of Project NBN”.
A fibre-to-the-premise model runs fibre optic cables all the way from an exchange into households, while fibre-to-the-node only runs fibre cable from the exchange to an air-conditioned street side cabinet – the node - serving dozens of premises but keeping the copper wire between the node and households.

Mr Young also says fibre-to-the-node is more expensive over the long term than NBN Co's current design.

“The apparent cost advantage of fibre to the node decreases as you lengthen the time frame you look at. In the long run, as Keynes famously said, we are all dead. Estimating costs is an engineering problem. Deciding on the relevant time frame is a policy question.”

Opposition communications spokesman Malcolm Turnbull has promised a Coalition government would deliver “very fast broadband sooner, cheaper and more affordably” using a mix of technologies, including fibre-to-the-node.

A future Coalition government would also keep the pay-television and internet cable owned by Telstra and Optus, which is connected to about 1.2 million households in wealthy inner-city areas.

NBN Co has struck commercial deals with Telstra and Optus to buy their cable customers and decommission the cable, a move that is heavily criticised by the Opposition.

But Mr Young will today tell the CEDA audience that since the cable networks were only built in suburbs containing Australia's wealthiest households, forcing NBN Co to keep to cables and not build fibre would create the “ironic situation that the wealthiest suburbs have the lowest-quality broadband in the country”.

NBN Co's super-fast fibre network will start operating at 100 megabits per second, but can be upgraded to 1 gigabit per second and faster speeds in coming years. The existing cable network does not have the same upgrade capacities.

Mr Young, who is a director at the Commonwealth Bank, former director at the Bank of England and former chair of Morgan Stanley Australia, lays out the policy and market reforms the current Labor government wants to achieve and says natural monopolies can be the most most efficient use of society's resources.

Using the example of bridges, he says building two toll bridges right next to each other would halve the flow of traffic on each bridge and push tolls to cover the owner's construction costs higher than a single bridge-owner would have to.

Further, NBN Co will not become another Telstra because it is not allowed to sell services at the retail level, he says.

“The problem with Telstra is not that it is a regulated monopoly supplier of wholesale services but that it has been able to behave like a monopolist in the provision of retail services, which is not a natural monopoly.”

Mr Young will be speaking alongside the chair of Regional Development Australia, Dave Abrahams, managing director of IBM in Australia and New Zealand, Andrew Stevens, head of customer relationship management and Medibank, Dermot Roche and head of telecommunications research at Ovum, David Kennedy.

Australian Capital Cities: Where's Hot, Where's Not

DARWIN was Australia's best-performing capital city for property values during the past quarter - up 5.2 per cent - and showing year-on-year growth of 4.2 per cent, according to the latest figures from RP Data.

The RP Data-Rismark August Hedonic index shows Adelaide is the weakest performing capital city, with the change in dwelling values sliding 2.2 per cent during the past three months.

The monthly figures were more optimistic though for Adelaide, showing 1.4 per cent growth for August.

Sydney and Melbourne both recorded only 0.1 per cent growth for the month, but are performing better for the quarter, at 2.4 per cent and 2.5 per cent respectively.

RP Data research director Tim Lawless, said the figures showed a flat winter season that could be the foundation of a strengthening Spring.

Combined with the lowest transaction levels since the late 1990s, prices could also soon be expected to drift upwards after years in the doldrums.

"Spring is going to be better than last year,” Mr Lawless said.

"This is the first time that we have seen total listings across the capital cities the same as they were last year.”

Mr Lawless said lower listing levels were good news for vendors because it meant there was not as much choice in the market which could improve prices.

"In November last year, the listings were 30 per cent higher than they are now,” Mr Lawless said.
"They are currently only 0.5 per cent higher than last year, which means that we have a good benchmark level."

From a supply perspective, it’s a sign that there aren’t as many homes on the market at the moment and that means homes are selling a bit faster and vendors discounting a little less but transaction numbers stabilising.”

Mr Lawless said transaction volumes were at their lowest since 1998 - and were currently lower than during the Global Financial Crisis.

"At the moment based on June data, transaction volumes are 7 per cent lower than the same time last year,” Mr Lawless said.

"We’re averaging 30,000 sales each month and that’s fairly steady across 2012.”

But the lack of stock was being treated calmly by potential buyers who are showing patience about finding exactly the right home.

"A lot more people are attending local houses and showing interest in the market place but there is still not a level of urgency that will push buyers into making a purchase decision rapidly,” Mr Lawless said.

“Purchase decisions won’t be rushed, buyers are playing vendors off against each other and are negotiating pretty hard.”

Figures from the data showed:

- Hobart prices grew 3.9 per cent for the year to date
- Sydney prices grew 1.9 per cent for the year to date
- Darwin prices grew 8.4 per cent for the year to date
- Brisbane prices grew 0.6 per cent for the quarter
- Perth prices lifted just 0.2 per cent for the quarter

Australia Mortgage: House Prices Flat in August

 

AUSTRALIAN house prices were flat in August, although Adelaide and Canberra experienced some growth.

House prices in Perth and Hobart fell more than one per cent in the month and there was little price movement in Sydney, Melbourne and Brisbane, the RP Data-Rismark August Index showed.
Adelaide and Canberra prices increased more than one per cent, while Darwin home values fell half a per cent.

The index posted a 1.6 per cent increase in Australian home values over the past three months but a fall of 2.4 per cent over the year to August.
During the quarter to August, Darwin was the best performing capital city, registering 5.2 per cent growth.

This was followed by Melbourne at 2.5 per cent, and Sydney at 2.4 per cent.
Perth and Brisbane recorded marginal growth of 0.2 per cent and 0.6 per cent respectively over the three-month period.

RP Data research director Tim Lawless said Sydney dwelling values increased in five of the past eight months, helping to provide a cumulative capital gain of 1.9 per cent over the year to date.
"Sydney is proving to be one of the most consistent performing capitals this year," he said.

A rebound in Melbourne was also encouraging, given more worrying signals earlier in the year.
"Improved affordability since June has helped dwelling values rise across every capital city over the three months ending August 2012, apart from Adelaide," Mr Lawless said.

"The big question is, can this growth be sustained?"

Mr Lawless said the spring selling season would be a good litmus test.

The highest rental yields for houses in the quarter were in Darwin at 5.8 per cent and the lowest yield were in Melbourne at 3.6 per cent.

No Grounds To Give Up Coffee - Coffee Price Comparison Australia

HOBART coffee lovers are paying up to $1 more per cup of takeaway cappuccino than those in Sydney.

Local prices are also on par with Perth, which has taken the mantle of the most expensive major city interstate, new statistics reveal.

But local barristas say their customers base their decisions on their tastebuds not their wallets.

A recent survey by Gilkatho, a coffee machine retail company, has found the average price for a takeaway cappuccino in Australia's major capital cities varies from $3.36 in Melbourne to $3.87 in Perth.

A Mercury survey of Hobart coffee shops yesterday showed prices were all generally above the $3.47 national average.

Prices for a regular takeaway cappuccino in Hobart varied from $3.50 to $4.35.

Doctor Coffee owner Craig Gibson said yesterday there was a number of reasons why coffee can be more expensive in Tasmania.

Transport costs were a big reason, he said.

"A lot of our coffee comes from Melbourne, where a lot of the good speciality roasters are based," he said.

Mr Gibson said most of his customers were not shopping on price.

"Ninety nine per cent of our customers come here because of the quality," he said.

Di Bella coffee managing director Phillip Di Bella said yesterday it costs about $1 in ingredients to make a cup of coffee and $2 including labour.

"As labour is the main cost in making a coffee and pay rates vary from state to state, this can change the cost to make a coffee considerably," he said.

"Rents also vary depending on the location of the cafe, city and space."