AUSTRALIA’S NEW “SUPER” INFLATION IS HERE TO HELP!
The Australian dollar was recently boosted by the announcement of a major new US monetary policy, which is set to lift the AUD to $US2.40 by the end of the year, bringing the US currency to parity with the Australian.
AUSTRALIAN BANKING HAS BEEN SPENDING BIG TIME IN AUSTRIA TO BUY US EQUITY The Federal Reserve has been buying $US40 billion worth of US equity every month to keep the AUD stable, with the central bank’s purchases being in addition to the $US10 billion of gold it has been holding since July.
Finance Minister Mathias Cormann told parliament this week the aim was to keep interest rates near 2 per cent, and boost growth to 2 per cents per dollar.
In the latest round of buying, the Federal Reserve said it was buying $1.4 billion of bonds to buy US Treasuries and US mortgage-backed securities, while $US500 million was being invested in the US real estate market.
It said the funds would be used to support the economy, maintain the strong balance of payments, and provide liquidity for the financial markets.
“The US dollar has been strongly strengthening over the past year, and as the US economy strengthens and global trade strengthens, we are confident that the Australian economy will be able to continue to grow,” Mr Cormann said.
The Fed is also buying US Treasing bonds, which it holds as a reserve asset against US government debt.
Its purchases have been a key driver of the AUD’s strong current account position and it has increased its holdings in US Treasury bonds by more than $US800 million since July, a $US200 billion increase.
Cormann said the Federal Government was also spending $US300 million a month on buying US mortgage bonds.
These purchases are helping to maintain the US financial system and help reduce the risk of financial instability.
However, the Reserve has also increased its purchases of US Treases by $US400 million a year since July as part of the $AUD$US2 trillion asset purchase programme.
This will provide more support for the US Treasury market and will allow it to maintain its high rates.
Mr Cormann noted that while the Federal Treasury has remained relatively stable over the last 12 months, it had “taken a big hit in terms of the impact on the US stock market”.
“I think the Reserve’s asset purchases have done a lot to support stocks in the long term, but in the short term they are also helping to support our real estate markets,” he said.
“The bond markets have been extremely strong, so we have to be very careful with our asset purchases.”
The Reserve’s $AUD1 trillion asset buy has created a massive $AUD3 trillion in liquidity in the financial system, and is expected to create more jobs and boost economic growth.
Australia is also a major market for US exports, with a large share of the country’s exports coming from the US.
US trade figures show that Australia’s trade surplus with the US was $AUD16 billion in 2018, up from $AUD11 billion in 2017, and it was worth more than the US exports of $AUD2.2 billion in 2019.
For the first time, Australian exports to the US were up over the next four years, according to data from the Bureau of Statistics.
As the US Federal Reserve continues to push up interest rates, the dollar is being viewed as a safe haven for US dollars.
While the Federal Central Bank is likely to maintain rates at the current 2 per cents, the AUD has become a safe asset against the US dollar.
The currency’s strength has given the US Government the opportunity to boost the US economic growth and jobs.
Australian investors have also been buying US stocks, and have also begun to buy Australian real estate, which has helped to create the infrastructure needed to support growth and boost living standards.
According to the Bureau, there were 2.5 million homes listed for sale in Australia last year, up 17 per cent on the previous year, while home prices were up more than 50 per cent.
With its huge US dollar reserves, the Australian Government has also been able to help to create jobs by cutting taxes, reducing red tape, and increasing investment.
And, Mr Corman said that while some of the money spent by the Government on infrastructure was “not necessarily” money for the long-term, it was a “huge help” in helping to sustain growth.