Australia avoids the currency war at its peril

Terry McCrann has put it best in a refreshing piece in the Sun-Herald:

....AUSTRALIA is caught smack in the middle of a real live shooting war. Even if it's not bullets and bombs that are being fired.The overwhelming majority of Australians don't know it's going on. And if they did, they'd probably think it was good news for them....And up to a point, they'd be right. Trouble is, "that point" was reached some time last year. Until then, we were beneficiaries. Now we're at risk of becoming - serious - collateral damage....It's the global currency war. Everybody has been trying to weaken their currency to boost their own economy. In echoes of the trade wars of the 1930s - stuff everybody else...

...So how it plays out from here, is critical to everything that impacts on your financial and economic wellbeing. Property prices. Interest rates. Inflation. The stock market. Superannuation. Whether you have a job. Which businesses thrive, which ones shrivel....In recent weeks, the Aussie dollar has drifted in something of a backwater around $US1.03....  The RBA might not seem too fussed. But it is very, very fussed. (here).

Alan Kohler had a good piece looking at the role of Japan and the inability of the Australian government to do anything meaningful.  Are you paying attention Wayne?

...In this context, the Labor Government's "industry and innovation" plan this week is a drop in the ocean, not that anyone expects a big dollop of deficit spending to support manufacturing, or expects the Reserve Bank of Australia to join the currency wars and target higher inflation....

The RBA and the ALP have done what they can. The cash rate is now as low as it's been for 40 years and despite some problems with unionised construction, wage costs overall are not really a problem.....But despite record low interest rates, monetary conditions for Australian businesses are at a record high.....That's because the transmission mechanism between interest rates and the exchange rate has broken down, in turn because of three waves of quantitative easing by first the US, then Europe and now Japan....Japan, straw, camel's back (here).

Swans in denial

...are not graceful...when is Treasurer Swan and the team running the Oz economy going to tune out of their cognitive dissonance?

...In a forceful intervention near the end of the conference Mr Swan said much of the talk about "so-called currency wars" was "completely misguided". It "unhelpfully reduced the focus on the G20's critical agenda to boost growth and create jobs".

What other finance ministers thought of as intervention to devalue currencies was more often the byproduct of completely appropriate moves to try and kick-start economies, he said...

...Earlier he had told Bloomberg television the yen's devaluation was ''a matter for the market''. The Japanese approach was "to stimulate their domestic economy. That is also good for the global economy.''... (here)

Japan selling AUD...an early shot in the currency war?

Or just simply smart money leaving?  Either way it signals a reversal of fundamentals for Australia.

......If we isolate the November and December MoF numbers for 2012, the pace of selling was even more aggressive. Almost A$8bn of Australian assets was sold in those two months alone by Japanese investors. That is an all time record and gives a clear sense of how aggressive this selling was... 

...Since Abenomics began in November 2012, total foreign bond purchases have not accelerated (chart 2) but the regional rotation has accelerated. Monthly MoF data show strong buying of core Europe (¥817bn per month), tiny selling of peripheral Europe and New Zealand (-¥7bn and -¥9bn), negligible buying of the US (¥2bn per month), significant selling of Australia (-¥235bn), and a meaningful increase into EM Asia and Latin America (¥73bn and ¥159bn, respectively)....(here).