aud and interest rates

What are peoples thoughts on the A$ and interest rates going forward. If commodity prices continue to collapse and the $A goes with it, then it will be a very interesting discussion at the RBA meeting whether to cut rates or not. If they cut too aggressively they could risk an even more severe withdrawal of foreign capital which could have ugly consequences for a country with a large current account deficit such as ours

The US is lucky (if you call it that) in that they have the Chinese and Arabs who have such large positions in their treasuries, in that a mass withdrawal would be counterproductive to the value of their investment. Australia is not quite so lucky as the fickle Japanese and carry traders have illustrated in recent months

For a country with a large current account deficit and a large reliance on foreign finance the severity of the fall in the Australian Dollar must be worrying the RBA, especially as we are staring down a significant slow down.

It would be interesting to see the RBA foreign exchange reserve movements at the moment, and see whether they are using any of them to defend the value of the $A which would then in turn allow them to cut.

A lot people seem to be assuming that i/r on their variable mortgages will be 5-6% by Christmas. I think things are a little more complicated than that.

Obviously a more severe case, but have a look at the issues facing the likes of Hungary (large current account deficit) at the moment as their currency dives.

These are intersting times that we live in