High dollar's wide impact

Published in the Daily Telegraph, April 2011

The local share market could start the week marginally lower today, weighed down by the effect of the strong Australian dollar.

US stock markets closed weaker on Friday amid concerns an agreement between Democrats and Republicans on budget cuts would not be met before deadline. 

This would have shut down the US government as it would have effectively ran out of money but party leaders managed to seal an eleventh hour deal.

The Dow Jones Industrial Average finished down 29.44 points, or 0.24 per cent, at 12,380.05 points, while the broader S&P 500 index fell 5.34 points, or 0.40 per cent, to 1328.17.

The tech-heavy Nasdaq Composite backtracked 15.73 points, or 0.56 per cent, to 2780.41 points.

The futures market was pointing to a marginal fall on the domestic share market today, although investors could be buoyed by the news the US budget deadlock had been averted, CommSec chief equities economist Craig James said.

The dollar, which hit an all-time high against the greenback of SUS1.0539 on Friday, may weigh on the bourse, Mr James said.

"The high Aussie dollar is certainly going to apply the brakes to the economy, for tourism sectors, for the export sectors, for investors generally looking at Australia and thinking it is getting a little bit pricey to buy stocks," he said. 

High gold and base metals prices could offset the effect of the high Australian dollar on the mining sector, he added.

The share market had recently rallied hard, so it could be time for a pull-back, Mr James said.

Investors currently had a high risk appetite and were shrugging off concerns about unrest in Libya, disaster-ravaged Japan, and European debt, pushing the All Ordinaries index beyond the significant 5000 point mark last week.

"There's a lot of potential problems out there but investors are taking on a positive view of things," Mr James said. "We need to take a pause for breath."

That sentiment was shared by Wealth Within analyst Dale Gillham who said buying needed to slow down to create further stability.

"Right now I would like to see buyer momentum slow down for one or two weeks so that the market doesn't move too far ahead of itself," he said. 

"Remember a market that continues unabated can quickly become unstable, as seen in early 2010.

"Looking ahead, I believe the All Ordinaries Index is likely to continue above the 5000 point mark in the short term to achieve around 5200 points."

Economic news out this week includes lending finance figures today, the NAB's business survey tomorrow, a consumer sentiment report on Wednesday and Chinese economic growth data towards the end of the week. 

Reserve Bank governor Glenn Stevens will speak in New York on Thursday.