Dollar's plunge takes star role as bourse slips in budget week
The currency hit a low of US97.36¢ on Friday after weeks of data showing a further recovery in the US economy, and as US Federal Reserve chairman Ben Bernanke prepared to speak at a graduation ceremony on Saturday.
After months of tedium, with the currency stuck in a range of US102¢ to US106¢, it sprang to life this week.
It has fallen from US103¢ to below US97.4¢ in 10 days.
Strategists are now split over its direction. Some think it will return above parity soon, while others tip it to weaken.
Interestingly, some investors think the dollar could be reconnecting with commodity price movements after a lengthy separation, so it will be worth seeing what happens in coming months.
Politically, the budget was the main game in town this week, with news the federal government was expecting to deliver a $19 billion deficit for the 2012-13 budget, rather than the predicted $1.1 billion surplus.
For the week, the benchmark S&P/ASX200 lost 25.3 points, or 0.5 per cent, at 5180.8, while the All Ordinaries Index lost 31.3 points, or 0.6 per cent, at 5159.8.
Morgan Stanley's Gerard Minack wrote his last "Downunder Daily" on Friday, signing off for a three-month break before returning to work as a consultant.
He used the note to talk about the investing profession and the difference between amateurs and those who get paid to do it full-time.
In sports, he said, amateurs usually stand no chance against professionals. Few amateurs could hit a winner against Roger Federer, say.
But amateurs frequently do better than the so-called experts when it comes to investing. The problem is that most amateurs "do far worse".
"This keeps professional investors in business (and that keeps people like me employed, which is nice)," Mr Minack wrote. "But it means that returns to investors typically lag benchmark returns by a long margin. The outlook, in my view, is for low returns ahead."
For the week, BHP Billiton lost 34¢, at $34.41, with new chief executive Andrew Mackenzie outlining plans to slash capital spending by almost a fifth.
Commonwealth Bank rose $2.64, at $73.21, and is on track for a record full-year profit of nearly $7.6 billion.
CSR rose 3¢, at $2.03, as the building products group put on a brave face after posting a $147 million loss, saying it believed the housing market was recovering.
Incitec Pivot rose 3¢, at $2.86, despite a fall in first-half profit. The explosives and fertiliser maker urged Australian governments to deal with soaring local gas prices.
Tabcorp Holdings rose 3¢, at $3.57, with the company beginning legal action against the Victorian government over a poker machine levy set to cost the firm millions of dollars.
Virgin Australia Holdings shed 3.5¢, at 42¢. Its shares fell after a profit warning issued by the airline after the market closed on Wednesday.
Wesfarmers gained 60¢, at $42.93. Wesfarmers downgraded its earnings forecast for Target as the troubled department store continues to weigh on the conglomerate's otherwise strong performance.
GrainCorp slipped 6¢, at $12.72, after Australia's largest grains handler reported a one-third profit drop as regulators consider a takeover bid from an American food giant.
Frequently Asked Questions about this Article…
The Australian sharemarket slipped this week, down about 0.6%. The S&P/ASX200 lost 25.3 points to finish at 5,180.8, while the All Ordinaries fell 31.3 points to 5,159.8.
The Aussie dollar dropped sharply, hitting a low of US97.36¢ after recent US data and Fed commentary; it fell from about US103¢ to below US97.4¢ in 10 days. For investors, a weaker dollar can affect exporters and resource stocks (often linked to commodity prices), overseas earnings for local companies, and the value of foreign investments, so it's worth monitoring currency-sensitive holdings.
Budget headlines were a big focus after the federal government signalled it now expects a $19 billion deficit for 2012–13 instead of the forecast $1.1 billion surplus. That political and fiscal uncertainty can weigh on investor sentiment and market performance in the short term.
Several companies moved notably: BHP Billiton fell after its new CEO Andrew Mackenzie outlined plans to cut capital spending by almost a fifth; Commonwealth Bank rose and is on track for a near-record full-year profit (~$7.6 billion); Wesfarmers gained despite downgrading Target’s earnings; Virgin Australia fell after issuing a profit warning; GrainCorp slipped after reporting a one‑third profit drop amid a possible US takeover bid; CSR, Incitec Pivot and Tabcorp also had notable moves tied to results, gas-price concerns and legal action over a poker machine levy respectively. These developments can affect share prices and investor expectations, so review company-specific news if you hold or watch these stocks.
BHP said it will cut capital spending by almost one‑fifth. For shareholders, that can signal a shift to conserve cash and prioritise returns or margins over growth spending; however, it may also mean slower expansion plans. Investors should watch updates from management for how cuts affect projects, cash flow and long‑term strategy.
Commonwealth Bank shares rose $2.64 to $73.21 and the bank is on track for a record full‑year profit of nearly $7.6 billion, indicating strong performance for that lender. While positive for that bank’s shareholders, everyday investors should still consider diversification and sector risk rather than relying on a single result.
When a company issues a profit warning—Virgin Australia’s shares fell after its warning—investors should review why earnings have been downgraded, reassess the company’s outlook versus their investment goals, check valuation and risk tolerance, and consider whether to hold, reduce exposure, or wait for more clarity.
Gerard Minack noted that while amateurs sometimes outperform experts, most do worse, and he expects a period of low returns ahead. For everyday investors this underlines keeping realistic return expectations, focusing on long‑term investing, minimising fees and mistakes, and avoiding frequent market timing.
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