(you might like this book if you like fin history like I do btw, A Short History of Financial Euphoria, John Kenneth Galbraith)
Also, the whole tulip bulb story is just hilarious. TULIPS. What the hell. At least have a bubble in something cool.
When it (Aus housing) begins to hit the headlines, THEN I think we'll begin to see AUD begin to weaken. In the mean time though, the prevailing sentiment seems to be AUD's ties to the Chinese economy.
I have to say, that from my (rather cursory) reading, that AUD's economy seems very very very much slanted towards it's mining (IE: west aussie) and it's mainly that portion that is benefiting from the whole "tied to China" thingo...
Surprisingly, while they get all the press (and credit), mining and agriculture are only a very small part of our GDP. They are 80% of our exports, but only about 11% of our GDP. We are largely a service economy, about 70%ish.
As a result, much like the US (who are also huge mineral and agri exporters), if consumer spending takes a dive, the service sector does, and unemployment follows.
It's one of the reasons the Australian arrogance with regard to 'our house prices wont fall because we are a hardworkin country and make money from China - not like those lazy yanks and their ninja loans who all work in services!' is so misplaced.
It does lead to a strange dynamic though, where any 'bad news' story about mining, the AUD or anything to do with China (recently: Beijing property prices) has the potential to cause a disproportionate amount of fear.
BUT, unless the Aussie's housing thingo implodes with a bubble like magnitude, we probably will see AUD head higher during this business cycle... which from economic data, looks like it's actually improving... and the c/banks - minus aussie and asia... the main beneficiaries from this run - have not even begun to hike rates yet.
While we have a stable economy, Australia isnt exactly about to become a safe haven country, so we are going to remain a beneficiary of a yield play. Once other countries (mostly Japan and the US, but a bit of Swiss as well) start raising their rates, the yield from an uncovered IR arb will fall.
Of course, counteracting that is going to be a greater flow out of bonds and into risk assets, but the magnitude of that is likely to be limited.
An interesting problem is going to emerge with Aussie debt instruments in the near future as a flowon from BASEL III, which - depending on how it is handled - could definitely impact the currency. But that's a whole different story.
This is an emerging market-asia run, of which Aussie's managed to hitch a ride from China to tag along (despite being majority racist rednecks? lol).
That's just my perception from where I'm standing. I must say though. you probably might have one of those "shit's gonna happen, but the market has not seen it yet" wrt this situation.
And as long as mining keeps bringing in taxes and overseas money so the gubment can keep shovelling money at households, so households can keep paying their mortgages and buying crap, so people stay employed, so banks can keep lending, so people can keep buying.
Open to more views as always
When you have to shoot, shoot. Dont talk.
lol.
