Trading

How to buy stocks in the Australian stock market

March 7, 2021 by Reporter Leave a Comment

The current stock market is in turmoil with a lot of volatility in share prices here in Australia, however there is a growing number of people who think getting in now could be profitable for them in the long term. So how do you get into the stock market ? How do you buy shares to take advantage of the current stock market tumble.

There are two different ways that you can get into the stock market and buy and sell shares

1. Sign up with bank share trading account that allows you to buy and sells shares

2. Sign up with a stock broker that specifically allows you to buy and sell shares.

There are other ways to buy shares like buying a bunch of blue-chip stocks or buying an ETF (which is also buying a bunch of shares) – but we will come to that later.

Banks as a stock trading buy and sell platform

Most big banks allow you to sign up with them for a stock trading account so that you can buy and sell shares. If you are already signed up with one of them, just enquire with them. Here is a list of banks that facilitate stock trading

1. Commonwealth bank ( Comsec – their share trading platform)

2. National Australia Bank ( Nabtrade – their share trading platform)

Below we give you further details about brokerage fees these bank charge and also prices for some popular dedicated share trading platforms.

How much money do I need to start trading the stock market?

Technically, there’s no minimum amount of money needed to start investing in stocks. But you probably need at least $500 — $2,000 to really get started right.

How do I make money in the stock market?

There are many ways to make money in the stock market, however the most simple method to understand this is when you buy a share today that cost you $500 , but its worth tomorrow is $600 and so you sold it – then you just made $100

To break that into much more realistic detail and give you an example

Eg. Say you got $500 to invest

Westpac bank shares are $15 each today, so you bought 32 Westpac shares

32 Westpac shares X $15= $480 + (add $10 bank fees for buying)

Total cost is $490 to buy the shares

Three days later (or six months later), there is a bit of recovery and Westpac share price rises and is $20 each share.

You had bought $32 shares earlier; you sell it today for $20 (that’s a $5 increase in the share price)

32 shares x $20 =$640 – $10 bank fees

You have $630 from your sell

Sell price $630 – Bought price $490 = Your profit $140

The bank does not charge you anything for holding the shares, but charge you for each buy and sell, which bring us to our next point -broker fees.

Now say if that investment was $5000 instead of $500 your profit could be $740 in one trade

How much does it cost me to buy and sell shares?

Every broker and every bank have different set of prices for buying and selling shares. It really comes down to ease of use, broker fees and availability of stocks to trade on each platform. Here is short comparison of some top bank and broker fees

Share trading fees – Banks

Commonwealth Bank – Comsec Fees:

For shares under $1000 in value – $10 each transaction

For trades between $1,000 and $10,000 – $19.95 each transaction

This is called the brokerage fee

Website https://www.commsec.com.au/support/rates-and-fees.html

National Australia Bank – Nabtrade Fees:

Up to and including $5,000 – $14.95 each transaction

From trades between $5,000.01 – $20,000 – $19.95 each transaction

Website https://www.nabtrade.com.au/investor/pricing

Share trading fees – Brokers

Two popular brokers apart from Banks are Self wealth and Ig markets. They both allow trading in Australian stocks as well as international stocks and CFD.

Self-wealth trading fees:

Brokerage fee for every trade, regardless of size – flat $9.50 (Only Australian Shares)

Website https://www.selfwealth.com.au/online-trading/

IG markets Trading fees:

Trading Australian shares – $8 per trade or 0.1% whichever is higher

For US markets – US$10, or 2 cents per share

Website:https://www.ig.com/au/charges

With IG markets you can do Australian and US stock market trading and also trade in CFD’s for which you have to sign up separately with them.

Other share trading platforms worth mentioning are ANZ share trading, Bell Direct and CMC markets.

Other new low brokerage share trading platforms introduced lately is superhero, Raiz & Comsec pocket.

Most banks and stock trading brokers provide additional data and tools for company and stock analysis, creating watchlists, setting price alerts, creating specific set price buys and more. Features offered can differ from platform to platform.

With Comsec and Self wealth – All trades are CHESS sponsored

There are two ways for shares to be held:

CHESS Sponsored Shares – Shares that are registered with a stock broker (CommSec or another broker). CHESS Sponsored Shares are allocated a Holder Identification Number (HIN) by the broker.

Issuer Sponsored Shares – Shares that are managed by the issuer of those shares via the issuer’s Share Registry. Issuer Sponsored Shares can be traded through any broker, providing conditions set out by that broker are met. Issuer Sponsored Shares are allocated a Security Reference Number (SRN).

In reality it does not make much difference to your trading profit, if it is chess sponsored or issuer sponsored.

Risky Stock Trading with penny stocks

There is a difference between big companies and small companies (smallcaps) and with small companies come more risk in comparison with blue chip stocks like BHP, Westpac.

Some traders can get lucky and pick a small company stock that can become a winner.

Take for example FMG – Fortescue Metals Group (iron ore miner)

This stock was once trading for between $2 and $3 – Today the price is $10

Say you dropped $5000 when it was $2, so you got 2500 shares of FMG

You sold it when it reached $10 today x 2500 shares=$25,000

You just made $25,000 from $5,000, however this is very rare- though people have gotten lucky with their stock picks and made money.

FMG was once a small cap with lot of debt and considered risky, but now they have paid up their debts and are considered much safer than they were before.

ETF’s

Another popular method of buying into shares right now is called ETF’s . With buying an ETF you have options like buying into a group of shares where you can also invest by putting money in a regular basis as low as $50 a month/week. Some providers/brokers also allow you to invest in ASX 50 or a lumpsum into a group of blue chip stocks.

ETF’s are available through bank trading platforms

Learning how to trade the stock markets is essential, before you decide to have a punt on your hard-earned money.

The stock market can make you money, but it can also take your money and put you at a loss. Doing dummy trading, joining stock trading groups and researching companies for three to six months is a good idea before jumping right in. Good luck!

Article written by Jeff – I blog about stock trading – Check my stock market blog over here

How to Control Emotion While Trading

September 28, 2020 by Reporter Leave a Comment

Most people consider trading as an easy job where you just need to buy and sell and you will get tons of money by which traders buy expensive stuff. Even in Hollywood movies, they show traders like this and people often do not get to know how trading is. Trading ads what you are going to find but when you are surfing the internet is like you just need to click and you will be in profit. But if you also consider trading like this then you are still in a dream. There are lots of variables goes through in traders mind and this profession is not as easy as it looks in ads and movies. Controlling your emotion is the hardest task when you are a trader. In this article, we are going to talk about the ways how you may able to control your emotions.

The ups and down

Think out the first day when you ride on a rollercoaster and how was the feeling that time. We know it was scary so you can consider the trading market like riding a rollercoaster because you do not know when and where the next turn can take. So when you are in the trading industry you must have to be able to deal with losing as well as winning and sometime it may occur within few seconds and this is the hardest part to keep your mind focused no matter how well or worst the situation is. To become a winning trader in Australia, you must need to take this type of pressure very easily and without this, you cannot go far just with the best trading strategy in the world. So your first step of becoming a winning trader has to be mastering your own emotions so that it can’t control your decisions.

Research the market

You are going to invest your money with Saxo markets, so at first, you just need to know the market well enough so that you can make buy and sell decisions very confidently. This will also help you to control your rollercoaster trading life. For example, you may be thinking about investing in a certain company and if you have a clear view about that market then you may buy or sell that companies share confidently as you know everything about that company. So knowing about the market make you more sensible and you can make a more effective trading plan and can act accordingly. People who trade bonds online knows exactly how they should research the market data. So, develop your researching ability.

Follow some successful traders

Here following does not mean coping a successful trader rather than we are trying you to research a few successful traders. How they make their trading decisions, which indicators they prefer, how they manage their risk, and from where they collect financial news. So once you get to know these things it will help you to find your own lacking and you may work on them and which will help you to boost your trading career.

Losing money is natural

You will not find any trader in the world who has a 100% winning rate in trading and so you have to understand that losing money is ok here and it is not a bad thing. You cannot avoid it no matter how good you do your analysis and how good is your knowledge you will lose now and then in this market. But the key thing that you have to do when you are losing is that you need to find out the reason you lose and work on them so that it will not repeat. Keep in mind that even if you are winning 55% of your trades then you are doing just fine and you don’t need to be tensed.

People often get emotional no matter he is earning money or losing money and earning money can make you overconfident and losing money can make your confidence level very low. So you need to control your emotion and don’t let emotion control you.

Keep emotions at bay in trading

August 17, 2020 by Reporter Leave a Comment

It is very common for beginners to get emotional during their trading sessions. As it is the largest financial center in the world, the expectation to strike reach overnight is very intense among the investors. As a result, they will try to implement techniques that are not only harmful but incredibly rewarding as well. Only 5% of the investors make it out of currency trading but the rest loses their capital. Many flaws can contribute to this outcome but the majority of failures occur due to not being able to manage the emotions correctly. Even if the methods are correctly followed, without a proper emotional management process there is no way to make consistent profit in the long run.

From experts to beginners, all of them have to go through the same difficulties. In this article, we are going to elaborate on some techniques that will help the nervous to check their emotions and also undertake meaningful strategies that will help them to make a profit. We expect our readers will understand some basic tricks that will help them to better confirm their emotions even during the financial crisis.

Mentally prepare for losses

We cannot emphasize enough how much important is the mindset of investors. Even if the trend is appearing in a favorable direction, a smart person will always have some backup plan that will be executed in case something goes wrong. It is incredibly difficult to forecast where the price will stop let alone resuming the future result. To minimize the losses as much as possible it is highly advised to prepare mentally before every trade so that it does not have a mental shock. There are various benefits of this strategy. The first is, you will not be shocked if the order is not executed S plant. This will keep the nerves cool and you will be better prepared for the next order.

The second advantage is there will be no hasty decisions made by the people. It is commonly found that people begin to lose money as soon as they have lost the initial trade. Every attempt to recoup the forgone investment results in failure.

Ability to endure losses

Without having the strong ability to endure losses, it will be hard to become skilled at trading. Most people will lose money and struggle hard to improve. When you become skilled at analyzing the market dynamics and accept the losses, the growth of your trading accounts balance will be exponential. Before you start taking the trades, spend some time in the paper trading account and you will be able to boost up the trading performance. Forget about the quick money-making tips so that you don’t have to wait for big profits. Execute smart orders to improve your skills like a professional trader.

Never act in the spur of the moment

This is an inevitable role that must not be broken. No matter the outcome, make sure there are no inconsistent techniques that are being implemented immediately. Human beings begin to lose their concentration whenever there is an unprecedented outcome. The industry knows it better therefore some scammers are trying to convince people to buy some crap formulas that are supposed to help them to make their dream come true. Imagine if a person has lost $10, it would be logical for him to invest $2 for an amazing eBook that will shed light on techniques used by the professionals. This example of an individual who is lost in his thoughts.

In every situation, try to stay calm and think of a solution rather than complicating the circumstances. Take a small break after every trade whether the result is a profitable outcome or financial fail as it will help to clear the mind. This is a long-term business where the right action can determine the outcome.

Simple Steps to Starting Your Small Farm Business in Australia

May 28, 2019 by Reporter Leave a Comment

If you’ve already got land and are looking to start a farm – whether it’s for practical reasons, such as using your own organic farm to provide food for you and your family, or just because you’re looking for something to do with your time and your land – getting started is a fun and approachable process! Farming in Australia does require some planning and foresight, but setting up your own farm is a highly rewarding process that can be as enjoyable as it is useful.

The Basics

First, before anything else, make sure that you know what you’re getting into! Farming is a large commitment of time and energy. Plan out the steps you’ll need to take to get your farm up and running – shop around farm machinery sales for equipment to make your life easier, such as small tractors for both organic farms and standard farms. You can also opt to use proper diesel engines and generators from Kubota to improve fuel efficiency on your farm. Accord fertilizer spreaders are really handy tools to help make sure you’re using your time and energy efficiently – don’t create more work for yourself than you have to.

Getting Up and Running

Look carefully at your land to decide what you’ll be able to grow and maintain. You might need to be looking at a customised trailer for your farm site. Farming in Australia presents several unique challenges, and you shouldn’t be afraid to ask for help or advice along the way. Move at a slow and steady pace while you determine the needs of your particular farm’s crops; an easy way to burn out both physically and financially is to move too quickly and take on more than you’re ready for.

Maintaining Your Farm

Remember that you’ll be putting a good amount of money into your farm for a year or two before you start becoming comfortable with the process and that it can take even longer to turn a profit if that ends up being your goal.

No matter what the length of time, make sure you’re maintaining your finances – keeping a budget (and keeping it up to date!). It is one of the most useful ways to make sure you’re sticking to a sustainable pattern of work.

Maintaining your farm equipment regularly to extend their life-cycle. Some parts such as auto-glass might need to be replaced more often than other parts. Be diligent in the physical work you do and the records you keep; this will ensure that you minimize risks among the factors you control, leaving you to work with factors you can’t control, such as weather and wildlife.

Planning and Thought: A Winning Combination

Make sure you’re putting careful thought into the start and development of your farm and you’ll find the process both challenging and rewarding! Modern technology has made the ancient systems of farming much more manageable and maintainable, and you’re in an excellent position to take advantage of the benefits these technologies offer.

Make sure you plan and move slowly when you get your farm up and running and you’ll be able to look out over your work in relatively little time, full of the pride that only an endeavour like farming can give.

Featured Photo © Pixabay

About The Author:

Caroline Bird is a creative writer and digital marketer. She loves sharing her perspective, tips and how-tos related to home improvement, productivity, business, technology, and SEO through her writing. Connect with Caroline via @bCarolinebird12

Possible bearish reversal in silver as resistance cluster ahead

June 19, 2017 by Reporter Leave a Comment

After the long bearish ride in the silver, the initial bottom is formed near the critical support level at 16.09.The professional silver trader made a decent profit by riding the long bearish rally in the market. The global market has been facing an extreme level of uncertainty in the recent days and trading CFD has become extremely difficult as the investors don’t have any clear clue regarding the next movement of the mighty U.S dollar. The U.S dollar index has fallen sharply in the ground after Mr. Trump failed to keep his promise regarding fiscal spending and tax cut policy.

Technical analysis of silver in the 4 hour time frame

Figure: Silver heading towards the 17.35 level in the 4 hour time frame

From the above figure you can clearly see that the price has bottomed near 16.09 mark and after that, it has started its correction. The price has nicely retraced back above the 38.2 percent Fibonacci retracement level and now currently heading towards the 50 percent retracement level. The professional traders have been trading CFD with an extreme level of caution nowadays since the price of a commodity is now showing wild momentum in the market very often. However, the investors are not staying on the sideline rather they are making the best possible trade in the volatile market.

U.S economic conditions: The performance of the U.S economy is not that great in recent days as most of the leading investors are in doubt regarding the next movement of the green bucks. The green bucks have lost most of its bullish strength in the global market after Mr. Trump failed to keep his promise regarding the increase of fiscal spending and tax cut policy. According to the leading economist, the green bucks might face an extreme level of bearish pressure in the upcoming days as Mr. Trump administration has done very little for the welfare of the U.S economy and made trading CFD extremely difficult. The U.S dollar index which is the overall value of the green buck’s strength in the global market has dropped from its 14 years high in the global market and allowed the price of silver to rally higher. Despite such weak performance from the U.S economy, the optimistic dollar bulls are still in hope that the green bucks will be back again to its former glory upon the interest rate hike decision made by FED chairperson Janet Yellen.

Expectations in market movements: Though the price of silver is rallying higher with a strong bullish momentum in the global market most of the leading investors are thinking that the price will ultimately cap down by the 50 percent Fibonacci retracement level drawn on the daily chart. Moreover, the price has started showing exhaustion candle in the daily time frame which is a very clear indication that the bulls are running out of steam in the global market. Though the overall sentiment for the price of silver remains extremely bearish at the current moment a clear break of the 61.8 percent Fibonacci retracement level will confirm the initial bottom formation in the long term bearish trend in the market. To be precise this will inaugurate the fresh bullish trend in the price of silver which will ultimately dominate the market for at least couple of weeks.

Summary: The price of silver is now trading near a critical zone and the professional traders are cautiously waiting to short the silver to trade in favor of the long-term trend in the market. Though the market is exhibiting a tempting short opportunity the traders should be extremely careful since it might even start a fresh bullish trend in the upcoming weeks. So make sure when you execute the trades in the market you follow proper risk management factors to save your trading capital.

How Did the Markets React to the ECB’s Interest Rate Announcements, and Mario Draghi’s Press Conference?

February 27, 2017 by Reporter Leave a Comment

Sometimes, announcements from the ECB and the following press conference with bank president Mario Draghi can be interesting occasions that leave us with plenty to discuss – such as the time in April 2015 when a protestor attacked Draghi with glitter and confetti before he had a chance to make his comments. The interest rate announcement on the 19^th of January in Frankfurt, however, was far less dramatic, both in terms of content and eventfulness.

Royalty Free Photo

No Change in Interest Rates

As anticipated, the ECB has decided to keep interest rates as they are for the time being, reasoning that the desired effects of the current low rates were beginning to show. The refinancing or ‘refi’ rates are to stay at zero, and deposit rates will remain at -0.40%, This is not only what was expected from this announcement, but is expected to be the status quo for some time to come.

It was also announced that quantitative easing will be set to continue without any reduction in investment from the current rate.

Mario Draghi’s Dovish Stance

Draghi’s press conference did surprise some forex and indices trading analysts – with positive signs indicating a potential uplift in the inflation and growth in the Eurozone, some were wondering why quantitative easing is to continue at its current rate. The answer that was received was that core inflation isn’t showing a convincing enough upward trend to convince Draghi and the ECB that quantitative easing (a program of investment by the ECB into government bonds intended to bolster the Eurozone countries) should begin to be reduced at this time.

Draghi is known for his prudent, sensible and often – in trader terms – dovish style, and this was very much in evidence on this occasion. It is likely that Draghi intends to wait and see how things play out in the changing economic landscape that is being created by events like the UK leaving the single market, and Trump beginning to put his presidential plans into place.

The Market’s Reaction

In the time leading up to the announcement, the euro ramped up a little, before taking a bit of a dive after Draghi’s press conference. This indicates that some might have been hoping to see some more bullish tactics from Draghi, especially with regard to quantitative easing (interest rates not changing was already taken as a given). However, the days when announcements like these take place are always volatile ones for currency pairs that include the euro, and generally, there are no real knock on effects from this, with the euro seeing a bit of turbulence throughout the trade day but ending up pretty close to where it started.

Effectively, this has been an interesting time for the euro, but with Theresa May’s announcements about her plans for Brexit involving leaving the single market and Trump’s official inauguration, for once, this ECB announcement was probably one of the least impactful things to happen in the week’s trading!

Some analysts predict that QE will need to start being dialled back soon, and that now would have been better than later, however other than that, there was very little that could be read into this announcement and press conference other than that the ECB doesn’t seem keen to add any more complication into the global mix right now!

The Resurgence Of Gold Price Trends In Australia

February 15, 2017 by Reporter Leave a Comment

Last year, when Donald Trump was elected president of the United States, the shock waves of this seminal event were felt all the way from the American to the Australian precious metals market.

Initially, the stocks fell steeply all across the board, only to rise up again much higher than before. However, political events notwithstanding, gold price trends in the Australian market are generally expected to remain highly positive in the long term due to many other reasons, such as low global interest rates and stock market fluctuations.

Most market pundits are still optimistic about gold. The funny thing about gold is that it tends to go up in both conditions – whether the markets are shakier, or when they are stable. Since gold is the most valuable thing we have, people like to buy it when they aren’t sure about other investments. The more uncertainty there is in the economic sector as a whole or the political situation in general, the more people would hoard up on gold as the ideal ‘safe bet’ for uncertain times.

On the other hand, brisk economic and industrial growth also portends a rosy outlook for the gold market since a vibrant economy means people would be spending more on gold jewellery as well as investing in the precious metal. This is why double digit gains for this metal are quite possible throughout this year as well as the next one. This is also why gold has almost always been a safe bet – even if the government around you falls and there is no more money, gold will retain its value.

In the light of President Trump’s highly controversial decision regarding immigration from many Muslim countries as well as his threats to pull out from many international economic treaties, there is a certain degree of uncertainty in the global financial environment that makes for a positive gold forecast in Australia.

We have before us the example of the Pound Sterling, when the UK decided to exit the European Union. That monumental decision sent the pound sterling crashing downwards in its worst ever one day loss since it had been floated. And as the British people lost confidence in their currency, they increasingly switched to gold in the UK. This had repercussions all over the world, as it led to a bullish gold market. As a matter of fact, the two momentous political events of 2016, i.e. Donald Trump’s ascension to the US presidency as well as ‘Brexit’ enabled gold prices to touch their highest point in 2016, thanks in large part to the volatility in the stock markets all over the world.

In addition to that, there is a small but steady increase of gold usage in the electronic industry, as it is an excellent conductor of electricity and does the job a whole lot better than most other metals.

In the light of the above we can safely state that gold prices are predicted to rise steadily over the coming few years.

Australia’s Top Cities for Construction – Melbourne vs. Sydney

January 22, 2017 by Reporter Leave a Comment

Melbourne and Sydney, in addition to being Australia’s most well-known and largest cities, are also world class destinations renowned for their beauty and lifestyles.

The strong rivalry between Sydney and Melbourne is well documented with everything from sports teams to culture and even coffee being debated about whose is better.

The cities certainly each have much to offer. Sydney is often described as one of the most beautiful cities in the world with its stunning landmarks including: the Sydney Harbour, the Sydney Harbour Bridge, the Opera House, Manly and Bondi Beaches and the Blue Mountains. With its many beaches and vibrant nightlife, Sydney is cosmopolitan and chic. The city is also Australia’s financial hub and home to a large array of international companies who use Australia as a base for their operations in the region.

Melbourne’s attractions are more subtle, and less glitzy. The city abounds in parks and gardens, leafy suburbs, bay beaches, and the Yarra River. Melbourne is home to an F1 Grand Prix, and The Australian Open Tennis Tournament. Throughout the city there are beautiful streets, cafes & coffee shops, and an array of restaurants and cuisines to rival any city anywhere. Melbourne also has a strong and vibrant business sector and continues to attract commercial and residential business and investment.

It has been said that the main difference between the cities is that Sydney has more to see and Melbourne has more to do.

In terms of population and growth, Sydney has 4.9 million residents, a 1.7% growth rate and has added 703,000 people over the past ten years, and is Australia’s largest city. Melbourne has a population of 4.6 million people, and with a growth rate of 2.1% and having added 832,000 people over the last ten years, is expected to surpass Sydney and become Australia’s largest city in a few decades.

Residential Construction in Melbourne and Sydney

With the influx of so many new residents, housing costs in both cities have risen substantially over the past decade, and builders are doing their best to meet demand for new housing. In both cities, their centers have become expensive and many new residents are flocking to their outer suburbs causing a boom in these areas.

For more urban Sydney, because of the high price of single family houses even in the outer areas, it is mainly apartments that are in high demand. While in Melbourne both apartments and single family housing is highly sought. The Australian Financial Review reports that there are 20,000 residential properties currently under construction in Melbourne, with more than 10,000 within the central business district. As is always the case with this type of demand, there are great opportunities for businesses like Lofts Quarries, that provide construction building materials including sand and soil.

Commercial Construction in Sydney and Melbourne

Because of the residential apartment building boom in both cities, there is a squeeze on the building of commercial projects at the moment. This is causing great concern as new residents flock to both cities and employment growth continues. There will certainly be a need for more office towers going forward, and there will be a battle for space to build. In Sydney there is even a plan to restrict residential apartment development in favour of commercial projects.

The residential and commercial construction booms in both Sydney and Melbourne are predicted to continue at least through 2017 and potentially much longer if population growth continues at its current pace.

Failing to predict 2015’s financial stories

April 20, 2015 by Reporter Leave a Comment

By Patrick Foot, financial markets writer at IG

For a year still in its infancy, 2015 has seen a lot of action across global financial markets thus far.

So much so, that many of the blockbuster stories at the end of last year – some of them still ongoing – have to an extent been overshadowed. The Russian rouble has continued to toil – Standard & Poor’s recently cut Russian debt to ‘junk’ status. Oil shows no sign of returning to strength anytime soon.

Perhaps the most notable feature of 2015 so far has been the unpredictable nature of market volatility. The status quo that many were predicting for the next 12 months is already being pulled seriously into question.

In the USA, another strong non-farm payrolls figure kicked off the year much as many were expecting. 252,000 jobs were added in December, against an anticipated 240,000. Unemployment fell faster than economists were estimating and with the previous figure being rounded up considerably, the US dollar went on the rise again. In the US, at least, the world had a leading light that wouldn’t fail.

Then came a durable goods figure that was stunningly off the pace, as orders declined 3.4% when the markets were expecting a narrow increase. Previous figures were also revised down amidst a substantial refresh of America’s economic outlook. As Chris Beauchamp, analyst at forex trading platform IG, noted: ‘The World Bank’s warning from just two weeks ago looks very prescient now, as a hitherto strong performance from the US begins to weaken. The world can ill afford Uncle Sam catching a cold.’

The bad news was only compounded by an earnings season that was seeing major companies miss expectations with alarming regularity. Microsoft and Caterpillar announced earnings either side of the durable goods report, with both companies missing the mark on several key figures.

Apple’s amazing iPhone sales aside, US earnings pointed to several major weaknesses in the US economy. All told, the US’s biggest three banks missed revenue expectations by a collective $3.19 billion.

But the biggest shock to the markets came not from the US but from Switzerland. The Swiss currency crisis caught the markets unawares, and sent shockwaves through equities, currencies and commodities. Its effect was such that it is still extremely difficult to pick apart exactly how a suddenly-valuable Swiss franc will play out across global economies.

The Swiss franc had been pegged to €0.83 since September 2011, and the Swiss National Bank had shown little regard towards scrapping the peg. Despite many noting since how damaging artificially holding a currency pair’s value can be – by 2014, Swiss currency holdings were equivalent to around 75% of GDP, and were on the rise – a drastic move from a famously conservative central bank was predicted by no one. As many have pointed out, the problems associated with pegging currencies may not have even applied to the Swiss franc against the euro.

However, the problems of suddenly unpegging currencies are now well known, as traders found out on January 15. The Swiss franc suddenly returned to its former high valuation, instigating one of the biggest moves in a major currency ever seen. Swiss business, banks around the world, and financial traders all lost millions.

If anything, the first few weeks of 2015 demonstrated that predicting the next 12 months of financial movements is a task beyond human comprehension. Whatever the rest of the year brings, though, it looks set to be a rocky ride.

This information has been prepared by IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

What’s the cause of the drop of the Australian dollar?

February 26, 2015 by Reporter Leave a Comment

The Australian dollar is dropping – but why?

If you’ve been keeping abreast of the news over the last few months, you’ll be familiar with the various headlines detailing the drop of the Australian dollar. But with so many voices arguing the different reasons for the dollar’s decline, it can get complicated trying to understand where this trouble started. That’s why we’ve taken a simple look at the key reasons behind the dollar’s fall – and the effect each one has had on the Aussie economy.

After a successful few years, ‘the wheels are finally beginning to fall off the Australian dollar’ warned Matt Simpson, a senior markets analyst for ThinkForex. It’s safe to say that this seems to be true, and the reasoning isn’t singular in nature, but instead an unusual mixture of events – not all of them in our hands.

At home the mining boom has unfortunately faltered, with iron prices depressed further by China’s troubles – but more on that later. It could be argued that as the mining investment hit its peak in 2012, this downturn was a long time coming, and responsibility falls towards our own dependence on the industry.

As the mining boom weakens and small mining towns pay the price, the housing market proved itself to be the only sector able to take its place. This intense focus and dependence on one area has left the housing market susceptible to a property bubble, fit to burst. Indeed, the new challenge faced by the Reserve Bank involves adequately stimulating the economy whilst keeping the problematic property bubble in check.

Domestic problems aren’t, however, the sole cause behind the drop in value for the Australian dollar. Instead, we should cast an eye to the world stage, where growth (and lack thereof) in overseas territories has impacted upon the AUD.

As previously mentioned, China’s own troubles have brought down the prices of iron ore, further weakening the mining industry in Australia. As a plan to limit pollution ahead of 2014’s APEC convention, China oversaw the temporary closure of several steel mills – which is why we saw the price of iron ore drop to its lowest in five years during the tail end of last year. Furthermore, China’s own growth is reportedly the weakest it’s been for twenty-four years; being our main trade partner, this isn’t good news for domestic finances.

But negative changes in China aren’t the only overseas factor dropping the value of the dollar. As you would expect from arguably the most powerful country in the world, recent strengthening of the greenback has benefited the States, with a knock on effect for several other countries, such as Canada and Australia. With plans to raise interest rates next on the agenda for the US Congress, the growth of the US economy could come at a price for smaller nations.

As this collection of circumstances continues to drop the value of the dollar, confidence levels also continue to drop, making the plight of the dollar all the more frightening. Whereas once it was seen as a safe investment with high returns and low risk, recent troubles have forced investors to seek an alternative elsewhere, further damaging the currency’s value. Instead, it’s reported that investors look to the Yen, buying from Japan and seeking the benefits in the US.

All in all, there’s no one single reason for the dollar’s recent decline in value – Australia is instead at the mercy of an unfortunate collection of events, caught between domestic matters and the affairs of other nations. Although the often predicted scenario of recession in 2015 seems likely, it is worth remembering that the economy is in constant flux; although some of the AUD’s allure has inevitably faded following recent troubles, we can be sure that its value won’t stay low forever. In fact, we’d bet our last dollar on it.

About The Author

Rachel Maher is a financial content writer from Western Australia, she writes for Fairgofinance.net.au

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