Australia was one of the better-positioned developed economies in 2009, and its exchange traded fund (ETF) followed suit. This year could be another breakout for the land Down Under: In a vote of confidence in its recovery, the central bank raised rates once again.
Australia’s Central Bank Governor Glenn Stevens boosted the overnight cash rate target to 4% from 3.75%, reports Jacob Greber for BusinessWeek. The news strengthened the Australian dollar against a basket of currencies, and brought the Aussie to a 25-year high against the British pound. [Australia ETF: Steady Growth, But Is Inflation Too Low?]
Looking at the numbers, it’s easy to see where the confidence comes from:
- The Central Bank predicts that a rebound in consumer confidence, greater business optimism, higher housing prices, drop in unemployment and signs of an investment boom will further aid the Australian economy.
- Retail sales increased 1.2% in January from December, more than twice the gain expected by economists.
- Australia’s company gross operating profits increased by 2.2% in the fourth quarter of 2009 from the previous quarter, reports James Glynn for The Wall Street Journal. New home sales jumped 9.5% in January from December.
- The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index rose 2.8 points to 53.8% in February from January. Anything above 50.0 indicates an expansion.
- The TD-Securities/Melbourne Institute Monthly Inflation Gauge increased 0.1% in February from January, and so far this year, the inflation gauge rose 1.9%.
As with any economy, there are roadblocks to watch. According to Netherlands Authority for Financial Markets chairman Hans Hoogervorsttold, the excessive debt taken on by governments around the world may eventually hurt Australia’s economy, writes Lucy Battersby for The Sydney Morning Herald. For example, the stimulus programs in Asian countries will eventually be wound down and demand for Australian resources will start to recede.
On the other hand, Asian economies may exercise caution in unwinding their various stimulus efforts. Doing so will help ensure that the rug isn’t just being pulled out from under any recovery.
For more information on Australia, visit our Australia category.
- iShares MSCI Australia (NYSEArca: EWA)
- WisdomTree Pacific ex-Japan Equity Income Fund (NYSEArca: DNH): Australia is 81.7%
- PowerShares FTSE RAFI Asia Pacific ex-Japan (NYSEArca: PAF): Australia is 72.2%
- Currency Shares Australian Dollar Turst (NYSEArca: FXA)
For full disclosure, Tom Lydon’s clients own shares of EWA.
Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.