What’s going on with the dollar?

The Australian Dollar has been in the news quite a bit lately, and it has a few people concerned about the impact on the economy. In the past couple of months, the dollar has fallen from as high as $1.05 vs. the USD, to the USD $0.94 range, a drop of some 10%.

Despite this recent fall, the AUD is still very high in historical terms. Ten years ago the AUD $1 bought only USD $0.60.

The strength of the AUD this past decade has been driven by three factors

• A stronger economic performance here relative to the rest of the world 
• Higher relative interest rates in Australia 
• The mining boom due to the growth of China, which led to increases in the prices of iron ore and coal (our major exports)

We are now witnessing a reverse of these three factors, and there are indicators that this will continue.

What’s happening in the economy…

In terms of interest rates, the Reserve Bank has cut rates to record lows domestically, which narrows the gap between Australian rates and the rest of the world, as those rates are close to or at zero.

The mining boom has slowed, with large reductions in planned capital expenditure being announced by all the major players.  There has also been a fall in the prices of our key exports from the sector.

The global economy has been holding fairly steady while the Australian economy has weakened, with many economists believing it is now our turn to slow, after a fairly soft landing post GFC (in comparison to other global economies).

This has led markets to expect much lower interest rates in Australia, sparking a sell off in the currency.

How does this affect individuals?

With the possibility of increased import prices due to the falling Aussie dollar and inflation, cash flow management will become a real issue with many Australians. Take petrol for example- the falling Australian dollar, according to a report issued by Commonwealth Bank, has added 12.5 cents per litre to the cost of petrol in the last couple of months.For those of us with mortgages, an increase in daily living expenses could push weekly budgets to the limit.

Despite what could be difficult times ahead, there are always opportunities in the market to take advantage of. With interest rates at record lows, now is the perfect time to review your mortgage and refinance if appropriate to your situation. A reduction in your repayments could significantly free up cash flow to alleviate the effects of increased living costs.

Be sure to consider the effects of refinancing on your personal circumstances before acting and talk to a non-aligned financial adviser to ensure you receive the best rates available in the marketplace. For more information on reviewing your mortgage, click here for our previous blog by adviser Duncan Brown.


Lynley Hukins

Australian Share Market Correction

Australian shares have undergone a correction in the last few weeks, falling just shy of 10% since early May. This correction has been led by some of the ‘safest’ stocks in the market, including our big 4 banks, who until early last month, had been on an incredible run for nearly a year.

The correction in the domestic market, along with more significant falls overseas, has impacted the Superannuation funds of many Australians. The funds will still yield a positive return, as most of these balanced funds (with their heavy allocations to both Australian and overseas share-markets), tend to follow the performance of the ASX very closely.

The corrections in the equity market have been driven by two factors. The first of those is continued release of the poor economic data in the domestic market, whilst the second, is the continued market uncertainty over the Federal Reserve Bank of America’s potential ‘tapering’ of Quantitative Easing.

When it comes to the Australian economy, signs of weakness have been appearing for months. Last week we saw, retail sales figure come in lower than forecast, whilst GDP figures were 25% below market expectations for the last quarter. Earlier this week, Home Loan figures released by the ABS highlighted the fact that our housing market is stagnant, showing the recent cuts in interest rates have not stimulated the housing market as hoped.

All this data paints a continuation of the volatility seen recently in the share market. Recent data released around the mining boom slow down, and investor sentiment confused at best, means we could be headed for more of the same instead of the recovery that was looking hopeful a few months back.

With the US Federal Reserve also unlikely to taper back its money printing program and the subsequent effects this will have on world markets, it is important to consider the risks associated with investment in equity markets. We recommend clients are very cautious, and customised in their equity market positioning, and we believe in safe investments in such volatile times.

Diversification across asset classes is important, and structuring your portfolio to balance with other asset classes including bonds, infrastructure, cash and precious metals will assist in decreasing your fund’s volatility.

With the end of financial year approaching, now would be a good time to look at where your superannuation is invested, and speak to an adviser to ensure you are adequately diversified and protected.



Lynley Hukins
Managing Director

EOFY Tax Tips for 2012/13

We are well into June with only a handful of weeks before the end of the 2013 financial year.  The following is a checklist of the more common tax planning tips for you to consider before it’s too late.


Super

Tax deductible contributions of up to $25,000 can be contributed into super in 2012/13.  Make the most of it.
Even more importantly, ensure you don’t exceed these contribution caps.
If you earn less than $46,920, consider making a contribution to qualify for the government co-contribution of up to $500.
Consider splitting contributions with your spouse if they have a lower super balance.  This could become useful in latter years.
If your over 55, consider a Transition to Retirement Strategy for next financial year!

Review Ownership Structure of Your Investments

If you have significant cash holdings, consider holding in the spouses name with the lowest marginal tax rate.  Or even better, take advantage of the non-concessional contribution limit of up to $150,000pa and contribute into your super fund, where the maximum tax rate is 15%.  You can still hold in cash or a term deposit, but in a much more tax effective way.

Prepay Investment Expenses 

If you have an investment loan, for example an investment property or share portfolio, you can prepay next year’s interest.

Manage Capital Gains

If you have a capital gain in this financial year, consider selling a non-performing asset to offset the gain with a loss.  If you are considering selling an asset which will result in a capital gain, if possible wait until July, and defer tax for another year.

Prepay Income Protection

Income protection premiums are tax deductible so look to pay annually.

Term Deposits

It’s a bit late now but in future, try to have term deposits maturing post June 30

It is very important you get advice from your accountant or financial adviser before taking any action as your personal circumstances need to be considered and the above checklist is not exhaustive. Generally speaking, it is usually to your advantage to bring forward tax deductions and get the benefit now.  Good luck!



Aaron McCracken
Head of Advice