Short ‘n’ Sweet – Aussie dollar and property

Editorial director of Switzer
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Tapering will now start in January and it looks like the days of US dollar parity for the Aussie are over, at least for the immediate future. It might be bad news for your overseas holidays, but it’s good news for US dollar earnings and anyone doing business in the States that has to swap currency back into local dollars.

CommSec chief economist, Craig James, in his annual “Big Issues 2014” report is forecasting the currency to hold from the low US80s to the mid US90s and he reminds us that the Reserve Bank Governor, Glenn Stevens thinks the Aussie battler should be closer to US85 cents. Something the Governor was reiterating yesterday.

AMP head of investment strategy and chief economist, Shane Oliver, also believes it is too high.

Charlie Aitken has been predicting 80c for a long time and his three favourite large caps today are all leveraged to this theme. “I have been bearish on the AUD/USD cross all of 2013 and I remain bearish for 2014. If I am right and the AUD/USD cross heads to 80 US cents in 2014, then we all need more exposure to US dollar earnings or direct US dollar assets,” he said in Part 1 of his 2014 update.

And finally, the charts are also pointing to a much lower level. Gary Stone’s analysis revealed that there is a high probability that the AUD/USD will continue to fall to around the US$0.79 – US$0.80 zone and on the way down, take a breather around the US$0.85 level.

Property

In his Big Issues 2014 report, Craig James also talks about a property “bubble” and echoes the views of Switzer Financial Group director, Paul Rickard, when he wrote back in September that: “There is no housing bubble in Australia”.

James points out, that though values are increasing quickly in Sydney, this is from a very low base.

“Sydney is an ‘outlier’ with home prices growing at a slower rate than inflation for a long time. It was only 16 months ago that home prices were falling on an annual basis. Also, encouragingly, new home construction (supply) is lifting to meet the higher demand. And once that supply comes on to the market, then growth in home prices is likely to ease,” he says.

Although there are plenty of SMSFs investing in residential property, for most that want a property exposure, the choice comes down to the decision between listed property trusts and unlisted commercial property funds. James Dunn’s recent analysis revealed that the yields on unlisted commercial property are attractive and they are being made more accessible with smaller minimum investments.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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