Who will stop the dollar's carnage?

By Robert Gottliebsen

At some point, the Australian government and the Reserve Bank will have to decide that enough is enough and give the Reserve Bank the scope to lower interest rates and not create a property bubble.

This Chinese money is combining with local investors to drive dwelling prices higher in Sydney while holding them in Melbourne.   A fall in interest rates would set the dwelling market alight and almost certainly create a residential property bubble.

But in fairness to all, Australia is caught in a serious currency/interest rate bind.  In Europe, the game that everyone in the money markets loves to play is to borrow at the token European rates and invest in higher Australian interest rates.

The Chinese and other Asian investors are not only buying existing dwellings but have doubled the price of inner city development land in Melbourne and Sydney (where building permits have been obtained), and are planning new developments funded by Chinese banks who have access to token interest rates.

And as the higher Australian dollar bites into our export industries, normally the Reserve Bank would end the game and lower interest rates.

Read more here: Business Spectator

    

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