International Investors Rush Into Australia; the Aussie Breaks 85 Cents

Today the carry traders lured by rising Australian Yields were joined by a broader range of international investors pushing the Aussie to 85 cents. Despite end of fiscal year speculations, the ASX index gained 9.3 points on bright prospects of the mining industry. The bond yields followed the US lead and opened higher, but were mostly slipping down during the rest of the day under the demand of carry traders.

Economists see rates staying steady - All 17 economists surveyed by Australian Associated Press (AAP) stated that RBA will not raise rates next Tuesday. The inflationary pressures are expected to be kept in line with the stronger Aussie for some time. The weak anticipated consumer price index (CPI) would also help. However, as the overall economic growth and housing prices stay hot, many economists are alert of strong inflation in 2008. It is only a question of time as to when RBA will have to take action to keep it in its target range. The views split with three economists out of the 17 surveyed are inclined to think that RBA will raise rates at the end of the third quarter, while ten reckon it will stay unchanged until the end of 2007. Source: Herald Sun,21985,21988289-5012062,00.html
BHP to build WA ore port - As transportation bottlenecks remain the largest constraints to the booming Australian mining industry, the sphere?s leader BHP Billiton is taking an unprecedented move to build its own port in Western Australia. The move was triggered by BHP?s ambitious expansionary plans of achieving production of 300 million tonnes of iron ore by 2015 at the very latest. The company wants to avoid the situation on the Australian east coast, where overly complex multi-owner ports result in difficulties for operations and more time consuming process of approving expansions. The company stated that it has committed to the project, but did not release the timeframe and costs. At the same time, Federal Resources Minister Ian Macfarlane addressed Queensland Governor to allow mining companies to invest in the state?s rail company. If Australia solves its current transportation bottlenecks, the economic growth should get even hotter. Source: The Australian,20867,21985899-5005200,00.html
Rio Tinto closer to sealing Mongolian deal - Mining giant Rio Tinto was told to be one step closer to start developing word?s biggest undeveloped copper-gold resource - Mongolian Oyu Tolgoi. Rio is planning to invest almost $2 billion into the project. The payoff is expected to be generous, as the resource is located mere 80 miles away from the Chinese border and is expected to average annual production of over billion pounds of copper and 330,000 ounces of gold for at least 35 years. Source: The Australian.,20867,21983524-5005200,00.html

The Australian dollar continued its impressive yesterday?s rally to break through the 85 cents again. The usual lure of higher yields by carry traders was supplemented by very strong economic growth. The ambitious expansionary plans of mining giants Rio Tinto and BHP Billiton inspired the overseas investors to pour into the Australian markets and ASX actually gained today, while Dow lost: not a frequent phenomenon. As analysts were searching for support for such a strong market statement, FOMC?s decision to keep rates the same, as well as rising oil and commodity prices were named as contributors for the Aussie rally.

[U][B]Stock Market[/B][/U]
The ASX saw some volatility today as conflicting interests were playing in the market. On the downside, Dow closed with a loss again and investors were ready to sell in the last day of the fiscal year to show losses on their tax returns. However, these speculations were eventually overpowered by the upside that was supported by rising oil and metal prices as well as bold statements of mining industry giants, such as BHP and Rio Tinto about unprecedented levels of growth in the years to come. Both companies gained 0.4% today. Second largest mover was retailer Woolworths Limited, gaining 1.4%. The third leader was Westpac Banking Corporation, which gained 1.0% as the Private Sector Credit surpassed expectations of 1.1% by 10 basis points. The index closed at 6274.9, up modest 9.3 index points.

[U][B]Bond Market

[/B][/U]The 10-yr yield surged today, following the US bonds that increased 5 basis points. For the rest of the day however fixed income markets saw downwards pressure from the carry traders, which resulted in a modest steady decline during the day. The 10-yr yield ended up with a 2.1 basis points at 6.256