Market and dollar shrugs off disasters

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The share market is pushing through six year highs and the Aussie dollar is stubbornly hovering around 94 US cents despite the MH17 tragedy and escalating conflict in Gaza.


Aside from a knee-jerk reaction, the geopolitical crises haven’t rattled investors, who continue to chase the high rates of return found in the Aussie dollar and local shares, analysts say.

“Investors have quickly worked out that those events were unlikely to threaten the global economic recovery,” AMP Capital Investors chief economist Shane Oliver told AAP.

“The plane tragedy is a horrible event but the conflict is largely confined to eastern Ukraine.

“There’s nothing that’s going to lead to a major war with Russia.”

While tension in Gaza has escalated, it’s been a conflict that’s been bubbling in the background for years, he said.

“Investors have been jumping at that shadow for many years now and it’s largely seen as a continuation of what we’ve seen in the past,” Dr Oliver said added.

“The conflict in Iraq earlier this year did unsettle markets because of the threat to oil supplies, but that threat has eased.

“These geopolitical crises hit the headlines but as financial markets are concerned, they don’t have lasting impacts.”

Dr Oliver expects the local ASX200 index to hit 6,000 points by at least June next year, a benchmark not breached since May 2008.

Despite predictions the Aussie dollar would fall this year, and the Reserve Bank’s best efforts to talk it down, the currency also remains trapped between 93 and 95 US cents.

Easy Forex senior currency dealer Francisco Solar says many are still predicting it to fall to at least 90 US cents by the end of the year, but it all hinges on the world’s largest economy.

“For the Aussie to push above 95 US cents or to fall below 93 there has to be a change in the US,” he said.

“If the US economy continues to pick up and interest rates rise then the US dollar will lift and the Aussie will fall.

“The big question is ‘when will the US lift interest rates?’

“This is not clear.”

Dr Oliver said an improving US jobs market was a sign the first rate hike in the US was on the horizon.

And while political tensions rise across the world, he predicts the monetary backdrop will remain supportive for investment markets.