1. Weaker interest rates is likely to see a rebuilding of interest in property investment
2. Certain metal commodities have remained fairly strong - coal, iron ore, alumina, gold
3. Australia's commodity focus & position in Asia mean it will fair better than other commodity producers - except perhaps South Africa (gold, platinum focus)
4. Increasing takeovers and investments by Chinese companies in Australian resource projects augers well for the country's future. Remember the impact Japan's investment had on investment. China's participation will likely be more significant.
5. Stronger food prices and rains I suggest will likely see a stronger rural sector, also helped by mining.
Those factors undermining the AUD are:
1. Lower interest rates is likely to place pressure on the yen carry trade, as funds are shifted out of Australia. NZ?
2. Business investment is going to result in greater outflows, mainly for mining. These projects will see the AUD rise high in future, but investors are short term focused so they will focus on the current account deficit, although it does strengthen economic activity, it does not flow through greatly to the retail sector.
3. The weaker global economic outlook is placing pressure on commodity prices, and thus those countries with commodities exposure.
Short term I am expecting a stronger Australia equity market, initially from the broader market, but thereafter the commodity-based markets should kick back in, and will rejoice in the greater interest by Chinese investors (mostly government enterprises) in our mineral & energy resources. I actually don't see a lot of weakness in interest rates because inflation is still high and spending will likely recognise the bottom. Until the global economy can see a problem, I think we are looking at the AUD going sideways against the JPY. The greater action will be the AUD-USD until we see more positive recovery in commodity prices.
Andrew Sheldon www.sheldonthinks.com