Australian dollar ignores talk of turbulence

The Australian dollar washed around in a narrow range today, moving only slightly lower despite RBA warnings of turbulence ahead.

The Australian dollar washed around in a narrow range today, moving only slightly lower as markets looked to the European session, despite central bank warnings of turbulence ahead.

Deputy governor of the Reserve Bank, Philip Lowe, told a business conference that markets should prepare for heightened volatility once the US central bank started to raise interest rates. Still, he said rising US rates would benefit the Australian economy through a falling Aussie dollar.

“The Fed will raise rates when the US economy is strengthening ... no doubt when the Fed raises interest rates, there will be some market turbulence, but this has been well telegraphed and people have had plenty of time to adjust,” Mr Lowe said.

“At some point when they raise interest rates, the US dollar will probably strengthen against the Australian dollar and, that is something we would welcome,” he added.

At 5pm (AEST), the Australian dollar was trading at US77.60c, compared with US77.96c at the same time yesterday.

Mr. Lowe also warned about the country’s property sectors and growing risks to the banking sectors from high levels of personal debt.

“The level of risk in banks’ mortgage portfolios has risen in the past couple of years: household debt is high, property prices are very high, income growth has slowed and the unemployment rate has drifted up,” he said.

“So all those things would suggest there’s been an increase in the level of risk, particularly for those who’ve bought properties for investment purposes,” he added.

Earlier, weak construction data for the first time again highlighted headwinds for the economy from a sharp downturn in commodity prices and mining sector investment.

The total value of construction work completed in Australia in the first quarter fell, dragged down by an accelerating decline in mining-related investment.

Construction activity dropped by 2.4 per cent from the fourth quarter of last year to $48.4 billion, the Australian Bureau of Statistics said.

In a sign that the end of a long mining boom is hitting the economy hard, private-sector engineering activity fell by 9.8 per cent, the fourth consecutive significant decline.

“The size of these declines shows just how significant the mining sector has been to the construction industry, and the Australian economy in general, over the past few years,” said ANZ economist Daniel Gradwell.

“We expect to see further falls in engineering construction through the rest of the year, particularly in Queensland as LNG projects reach completion,” Mr Gradwell added.