April was a month of consolidation for the Australian share market. The All Ordinaries index closed the month 0.7% higher at 5,944 points.
The Australian Dollar fell by 2.0% in April, with 1 Australian Dollar currently buying 74.87 US cents. Once again, the Reserve Bank of Australia (RBA) left the official Cash Rate on hold at 1.50% per annum.
Global share markets provided mixed results in April. The United States Dow Jones index gained 1.3%, the London FTSE fell 1.3%, the Japan Nikkei 225 gained 1.5% and the Hong Kong Hang Seng Index gained 2.1% for the month.
Throughout the month there were some more positive economic signs coming out of the United States. The chart below shows United States unemployment rate on a historical basis.
As shown above, the United States unemployment rate is now at the lowest level since 2007. This, in turn, should lead to wage growth and inflation in the United States. If inflation takes-off in the United States, then interest rates will undoubtedly increase further than expected to keep this in-check.
By contrast, Australia’s unemployment rate is stable at around 5.7%, and has not really tracked downward to the 4.0% rate that it was leading into the Global Financial Crisis. In this context, it is harder to see how the RBA will increase interest rates until the unemployment rate falls.
What does all this mean? The net result should be a stronger United States dollar over the medium-term. However, as history suggests, forecasting the currency is a difficult art. Especially when you consider exactly how closely tied the Australian economy is with China (and any changes in the demand for our goods and services).
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This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.