ANZ Markets today (local time: AEDT) is looking more like one main financial institution than it has in years, after a major fall in one of its main sectors, the Australian dollar.
On Tuesday, the Sydney Morning Herald reported that Australia’s big banks were seeing a decline in their exposure to equities, while one of their key currencies was down almost 1 per cent.
It said the decline in the US dollar and a rise in the Australian Australian dollar was impacting on the profitability of some of the world’s largest financial institutions, with big players such as Commonwealth Bank of Australia (BCBA), Westpac Banking Corp (WBC), Credit Suisse Group AG (CSGN), HSBC Holdings plc (HSBC) and Credit Suisure Group Plc (CSRG) all reporting significant losses in their currencies.
“A significant part of the decline is due to a reduction in exposure to international equities,” a Bank of America Merrill Lynch report said.
“However, we expect a similar pattern to emerge in the United States and Europe, with the continued growth of the US economy and continued strengthening of the European recovery,” it added.
In addition, the report said that there was a “significant decline in equities” in the broader Australian dollar, and a decline of around 1 per-cent in the global market for the Australian currency.
But it was a significant drop in equals that was the main reason the Australian benchmark, the US Dollar Index, was down by about 1 per, and the dollar index was down 0.3 per cent, according to data from the Australian Bureau of Statistics.
The Australian dollar fell by about 0.2 per cent in early trading in Sydney.
“The key driver for the fall is the US weakness, and as the dollar is less valuable to overseas investors, this could have an impact on the dollar,” Bank of Melbourne chief economist Andrew Lefebvre said.’
Not a good signal’The dollar index fell 0.8 per cent to $US0.9475, while the US Treasury yields fell by 0.6 per cent on Tuesday.
However, the ABS’s monthly inflation report shows that the rate of real income growth, which accounts for inflation, was 0.7 per cent last month, the highest since the first quarter of 2016.
“While the weak dollar may not be a good sign, it is a positive sign for the economy, with both the headline and inflation measures improving over the past 12 months,” the ABS said in its quarterly report.
The ABS is not tracking how much the Australian economy is growing or how the fall in the dollar affects the country’s economic outlook.
“Given the weak US dollar, the recent strengthening of growth and the current account deficit, the continued weakness of the Australian housing market, and ongoing concern about the outlook for inflation over the next few years, the dollar does not appear to be a major catalyst for further growth,” it said.