Market volatility continues but Sydney Airport passenger traffic highlights the benefit of weaker $A
US markets poured cold water on yesterday’s rapturous response to the Fed rate hike by Asian markets. This will see volatility continue into the year end. After gaining 4% over two days, the ASX 200 index is vulnerable to some profit taking and a soft end to a volatile week.
The mining and energy sectors will be unsettled by how weak the recent corrective rally in commodities has been and clear signs that downward price pressure is returning.
However, a weaker $A overnight will help soften the blow for Australian markets. The US Dollar’s strong response to the Fed rate hike will have the effect of exporting some of the US economy’s strength while importing some of the globe’s weakness to the US.
Sydney Airport’s announcement that international passenger traffic in November was up 5.6% compared to last year reflects the sort of benefit that Aussie dollar weakness is creating for many areas of the economy.
How strong the US dollar gets in response to the Fed’s rate hike now looms as the central question for world markets. There is a degree of circularity in this. It’s likely that $US strength will be one of the key determinants of how quickly the Fed lifts rates. A strong dollar is likely to keep the Fed cautious until such time that there is clear evidence that wage growth and the domestic US economy can push inflation towards its target.
Frequently Asked Questions about this Article…
The recent Fed rate hike has led to increased market volatility, with US markets reacting negatively after an initial positive response from Asian markets. This volatility is expected to continue as the year ends.
A strong US dollar can export some of the US economy's strength while importing global economic weaknesses. It also influences the Fed's decisions on future rate hikes, as a strong dollar may keep the Fed cautious until inflation targets are met.
The Australian market, represented by the ASX 200 index, is experiencing vulnerability to profit-taking and a soft end to a volatile week. However, a weaker Australian dollar is helping to mitigate some of the negative impacts.
The mining and energy sectors are particularly unsettled due to weak corrective rallies in commodities and signs of returning downward price pressure.
Sydney Airport has reported a 5.6% increase in international passenger traffic in November compared to last year, benefiting from the weaker Australian dollar, which is boosting certain areas of the economy.
The strength of the US dollar is crucial because it affects global trade dynamics and influences the Fed's monetary policy decisions, particularly regarding the pace of future rate hikes.
The weaker Australian dollar is helping to soften the impact of global market volatility on the Australian economy, providing some relief to sectors like tourism and exports.
If the Fed remains cautious due to a strong US dollar, it may delay further rate hikes until there is clear evidence of wage growth and inflation moving towards target levels, impacting global economic conditions.
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