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Despite
the willingness of analysts and company executives
to blame the A$ for the latest weakness in earnings,
the currency is not nearly the villain it is often
made out to be. For instance, our analysis shows
that since 1980, only 2% of the movement in the
ASX Resources Index can be explained by changes
in the A$.
Yet intuitively this seems hard to believe. Surely
a higher A$ must be bad for exports and create
particular problems for the mining sector?
Yes, but
it's not that simple. As most people know, the
A$ is primarily driven by commodity prices. It's
often referred to as a commodity currency. When
commodity prices go up, so too does the A$.
And that's
exactly what's happened during the past year.
The A$ has risen by 15.0% against the US$,
almost equal to the 15.4% gain in the CRB Futures
Index - the world's most widely watched commodity
price index. While it's true
that base metal prices have tended to lag, most
are still up by around 10% in US$ terms, and some
- such as nickel - have shot up by more than twice
that amount.
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