Aussie dollar - looking weaker

The Australian dollar is likely to fall off in the coming months as a softer Chinese and US economies tranlates into lower commodity prices. The highly indebted household sector will prevent the government from raising interest rates, though a weaker $A and tight labour markets suggests some upward move in interest rates will be required to quell inflation. There are already signs that retail sales and business confidence is weaker in the retail sector, so consumer spending should fall, but $A dominated mineral revenues will offer a sound buffer until inflation needs to be addressed. The 'staunchly independent' Reserve Bank (central bank) will have a chance to prove its meddle. We have already seen food prices moving up 7-15%, so that will eventually lead to wage pressures.

Strong commodity prices was recently the reason for a strong $A, but it appears to have been a speculative commodities play rather than reflecting real demand. Economic activity just was not that strong.

This set of affairs means that Australian gold stocks will out-perform.