Still some bang left in the mining boom

Posted: 14th Jan

Judging by the sudden turn in the dollar's fortunes, you would think the great mining boom, the one that's supposed to be over, is just having a well-earned rest.

What's more, commodity prices have stopped their downward trend and miners are digging up and exporting more than ever.

That's why its refusal to say die isn't hurting the sharemarket, which is hovering at a five-year high.

Instead of sinking to about US80¢ as the Reserve Bank and business wanted, the dollar has doubled back above US92¢.

How come? In a word, China.

A slew of statistics show its engineered slowdown to stop rampant property speculation has, well, slowed.

China is picking up that commodity prices are holding their ground or, in the case of iron ore, even edging up at a seasonally weak time.

They're nowhere near the peak of two years ago, but they haven't plunged precipitously, either. So there's no point getting worked up over the chances of the Reserve Bank cutting interest rates again.

If China really is on the rebound and commodity prices have stabilised, what's the problem?

Green shoots are sprouting everywhere. Growth among the G20 countries shot up from 0.6 per cent to 0.9 per cent in the June quarter, according to the Organisation for Economic Co-operation and Development.

Since then the US economy has unmistakably improved, Europe has hauled itself out of recession and Japan has started to recover. In which case the dollar is holding up for the right reasons and the Reserve Bank can relax.

So if the dollar's higher-than-expected value is unlikely to prompt a rate cut, how about the rise in unemployment to 5.8 per cent?

I doubt it. The labour figures are notoriously prone to revision. They're also water under the bridge because they only show what bosses were doing more than three months ago and before the election. Nor are they as bad as first appears.

The number of full-time jobs lost dropped to 2600, while the number of hours worked reached a record high, suggesting the problem isn't so much bosses firing as not hiring.

Even if the Reserve Bank were uncharacteristically inclined to act on one month's possibly wonky figure, it would quickly have second thoughts once it glanced at the property market. The last thing it wants is a bubble there.

So it's unlikely the dollar will be undermined by another rate cut.

That leaves the big unknown of when and how fast the US will wind back its bond-buying program that's unintentionally pumped money into world markets. This is expected to begin this week and will suck money back into the US. That'll force markets to stand on their own feet. Oh dear, they won't like that.

Anyway, the big thing the dollar - and, for that matter, our sharemarket - have going for them is the mining boom mark II.

That's the part when we start exporting more just as commodity prices are rising again.

Canberra Times - David Potts - 15 Sept 2013 -