Tuesday 10 April 2012

Focus on Australia


The advice is good, but just a beginning for Australia. And the sooner it focuses on becoming self-sustaining within its borders, the better. -- MCR

Investment has 'reached its peak'
THE massive investment boom has peaked, removing a key plank of support for the high dollar.


10 April, 2012

One of the country's most respected currency strategists says investors might soon start to ''mothball'' projects in the belief Australia's $912 billion investment pipeline cannot get any bigger.

For each of the past five weeks, the Australian dollar has lost value against the greenback, dropping from just above US108¢ in early February to US102¢ now.

Robert Rennie, the chief currency strategist at Westpac, said that was a sign investors' minds had begun to shift. ''We're at an important point,'' Mr Rennie told BusinessDay.

''The market is beginning to say: I don't think that $912 billion is going to get any bigger. In fact, I think it's going to start getting smaller.

''We're going to start to revise down our investment expectations. We're going to start putting off investment, whether that's because we believe China will use less steel or because we think that the US might become an exporter of LNG [or it] might dump coal into the Asian market.''

Mr Rennie said the ''X factor'' that was driving the dollar higher from late last year - the belief the unprecedented investment boom would continue unabated - seemed to have disappeared.

''We've reached the peak. The way that we think about Australia is going to change,'' he said.

The chief economist at AMP Capital, Dr Shane Oliver, said the investment pipeline was at or near its ceiling.

''Over the last few years, we've seen a massive expansion in the supply potential in the commodities sector,'' Dr Oliver said.

''Producers are starting to recognise that, and therefore they are likely to be less enthusiastic in announcing new projects in the future. So that pipeline of yet to be completed mining projects is [likely] at its peak, or getting pretty close to it.''

Paul Bloxham, the chief economist at HSBC Australia, said the multi-billion dollar investment pipeline included projects that were definitely under way, but he said among those projects still under construction, not all would necessarily get going.

However, he disagreed with the idea that the dollar had fallen in recent weeks because the investment pipeline was near its peak.

''I think the reason why the Australia dollar has retraced is because commodity prices peaked [late last year], and have since come down,'' he said.

''The dollar tends to track the terms of trade fairly well, and it looks like it's moving in line with those commodity prices.''

Chad Padowitz, the chief investment officer at Wingate Asset Management, said the dollar was under pressure because of several factors.

''It looks like interest rates here have definitely peaked, and things are looking better in the US, so some money's flowing in that direction,'' Mr Padowitz said.

''And with BHP Billiton and Rio Tinto admitting that demand for iron ore has slowed down, I think all of those things have combined to weaken demand for the Australian dollar,'' he said.

More stories from Australia here:

Big spending fails to boost infrastructure



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