The Australian dollar continues to power ahead setting new record highs against the USD. Today the AUD is trading at 105.5 US cents with some analysts calling for $1.10. Personally I think that now is a good time for investors to revisit their international exposure and consider rebalancing their portfolios to increase their allocation to non-AUD denominated assets.  When doing so investors might want to consider utilising alternative assets in order to increase their overall diversification.  Australia’s two speed economy is in danger of becoming a one speed economy totally dependent on the resources sector. This will have significant impacts on property prices through higher inflation which will result in higher interest rates. While the resources boom continues to strengthen I believe that this will create a very difficult environment for the Reserve Bank and the government to manage the economy.

Finally the loose monetary policies (printing of money) of the developed world are the fuel behind the majority of the developed world’s economic growth. Early signs of economic pickup are encouraging but it seems unlikely that this economic growth is self sustaining. The key risk beside increased inflation is that the stimulus created by government spending might be withdrawn too early as demands escalate for governments to be fiscally responsible. We do not want the government to take away the punch bowl just as the party is getting started but if governments wait too long the risk of inflation increases. There is no doubt that this will be a delicate balancing act.

This is an excerpt of Michael Lannon's monthly commentary. Read the full commentary here.


Michael Lannon
Founder & Executive Director