CBA: If you think a credit rating downgrade will weaken the Australian dollar, think again

On Thursday Standard and Poor’s placed Australia’s AAA sovereign credit rating on watch “negative”, implying that there is now a one-in-three chance that it will be downgraded within the next two years without remedial action to address the agencies concerns.

As soon as the announcement hit, the Aussie tumbled by 1% in a matter of seconds before rebounding in the hours following.

The 5-minute tick chart below, courtesy of Thomson Reuters, shows the wild price action seen following the announcement.

The rebound, something that eventually saw the AUD/USD rise back to the levels it was trading at prior to the announcement, has some people scratching their heads.

Why, if Australia could potentially lose its credit rating, would investors want to buy the Aussie?

To Joseph Capurso, senior currency strategist at the Commonwealth Bank, there is a simple explanation to rapid recovery: there are more important factors that drive currency movements rather than credit ratings.

“We do not believe S&P’s change in view will be a trigger for a sustained down-leg in AUD/USD. After all, the Australian government’s rating has not been cut, merely the risk of a cut to the rating in the next two years has increased to one in three,” says Capurso.

“Most importantly, credit ratings are not a fundamental driver of AUD. Commodity prices, current account balances, and interest rate differentials are much more important drivers of AUD.

“Because the change in the outlook for the Australian government’s credit rating will not change any of these fundamental drivers of AUD we see no reason to change our medium term AUD forecasts,” he adds.

Capurso sees the AUD/USD finishing the year at 73 cents. In a recent poll conducted by Thomson Reuters, the median forecast is for the Aussie to close out 2016 buying 71.5 cents.

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PHOTOS: Sydney lights up for Vivid opening night

The 2016 Vivid Sydney festival kicked off on Friday night bringing three weeks of incredible light installations, music events and talks across the city.

The Circular Quay precinct lit up for the opening night with the Sydney Opera House putting on a show for viewers with contemporary Australian indigenous art.

Other areas in the city which were also illuminated included Martin Place, Walsh Bay, the Royal Botanic Gardens and The Rocks.

This year, the winter attraction is expecting to pull in more than 1.7 million visitors — the number of visitors seen as last year’s festival which delivered a record $63.2 million in visitor expenditure to NSW.

Vivid Sydney is currently in its eighth year. It will run from May 27 to June 18 with lights on from 6pm to 11pm each night.

Here’s a selection from last night’s opening.

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Meet a newly discovered family of snail-chomping carnivorous Australian marsupials

The remains of a bizarre snail-eating Australian carnivorous marsupial have been uncovered in Queensland.

The previously unknown extinct marsupials lived 15 million years ago, grew to about half the size of a cat and appear to be related to the dasyures, the marsupial carnivores such as Tasmanian devils and the extinct Tasmanian tiger.

“Malleodectes mirabilis was a bizarre mammal, as strange in its own way as a koala or kangaroo,” says study lead author Mike Archer at the University of NSW.

“Uniquely among mammals, it appears to have had an insatiable appetite for escargot — snails in the whole shell. Its most striking feature was a huge, extremely powerful, hammer-like premolar that would have been able to crack and then crush the strongest snail shells in the forest.”

The ferret-sized marsupials were found in an area which has been producing regular amazing finds.

These include a tusked kangaroo called Fangaroo, strange leopard-like crocodiles called Drop crocs which may have been lived in trees, and Dromornis, the Demon Duck of Doom, which was one of the largest birds in the world.

Research describing the marsupials is published in the journal Scientific Reports.

Isolated teeth had been unearthed over the years at Riversleigh World Heritage Fossil Site in north-western Queensland where Professor Archer and his colleagues have excavated for almost four decades.

But the different nature of the marsupials was not realised until a well-preserved portion of the skull of a juvenile was found in a 15-million-year-old Middle Miocene cave deposit.

This juvenile was only recently extracted from its limestone casing, using an acid bath at UNSW, which made it available for study with modern techniques including micro-computed tomography.

Nothing remains of the cave at Riversleigh, except its limestone floor, which contains the bones of thousands of animals that fell into, or lived in, the ancient cave.

Many other animals that lived in this lush forest met a similar fate with their skeletons accumulating one on top of another for thousands of years.

The Riversleigh World Heritage fossil deposits span the last 24 million years of Australian history.

The Riversleigh Project, which has been a major focus of the palaeontological team at UNSW, is about to carry out its 40th annual expedition to Riversleigh.

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Australia’s 3 biggest technology challenges

The evolution of Australia’s economy will bring a constant stream of new challenges. As a technology journalist, over the last 12 months, there have been three key areas fundamentally shaping this country that I and others have constantly written about, and their importance will only continue to rise.

These are issues that affect our civil liberties, that will help us or hinder us when competing on the global stage, and will affect every Australian, no matter where you live or what you do.

The backbone is the NBN, a topic that has made headlines for years now, and mostly for the wrong reasons. It’s a project so critical to our economic future, yet politicians on both sides are using it as a pawn to grab votes. We’ve changed policies once, away from a full fibre roll out to a “multi-technology mix” from the Coalition which was allegedly meant to be cheaper, with only negligible speed differences.

But several leaks, and many first hand accounts, have shown problems right throughout the project. There have been government payouts to certain big telcos in the country that were a lot higher than first anticipated. As a result of policy changes, the rollout has been significantly delayed, leaving Australia’s technology infrastructure continuing to trail that of its global peers.

The Coalition and its supporters are fine to acknowledge the importance of a national broadband network, but not so much the need for a future-proof, full fibre attack. There are arguments thrown around that it’s simply just for faster movie downloads and for not much else, and that’s completely untrue.

Even if you look at that argument and how the NBN will be used for entertainment, the economic benefits are huge. It creates opportunity for more multinational companies to enter Australia, where they will generate economic activity and pay increasing taxes on their revenues. The vastly superior upload speeds allow Australian artists to create content on platforms such as YouTube for others to enjoy.

The wider economic benefits are huge too: allowing the development of e-commerce, cloud computing for businesses of all sizes, and importantly for those living in rural areas, and telehealth to help doctors treat patients in remote areas.

It also opens up the ability for Australia to be a world leader in the tech startup world.

And that needs real investment – the second big challenge. I spoke to Tien Tzuo, the founder of billion-dollar Silicon Valley company Zuora earlier this week where he reiterated that the Australian consumer and Australian companies are ahead of many parts of the world when it comes to digital adoption.

And with the right infrastructure and support, he believes Australia’s next multibillion dollar company can come from our tech scene.

“What I’d love to see in Sydney is a stronger local VC community,” he said.

“It’s easy for the New York and Bay area VCs to set up an office in London, but Sydney has the unfortunate aspect of just being really far away. It’s still really hard for Australian companies to find capital.”

But most importantly, for an Australian startup to succeed, Tzuo says they need to have lots of tenacity, grit and patience. And of course, pointing to Atlassian as a company possessing all three of those traits.

Then there is data retention.

As of October last year, every phone call you make, text message you send and email you write will be tracked by the government under a new metadata retention scheme.

This scheme is supposedly being implemented to protect the country against organised crime and terrorism, but there have been well-aired questions about its impact on citizens’ privacy.

It’s a vague program, with very little transparency on what data will really be collected. George Brandis famously struggled to explain it, exposing the complexity of the regime in an embarrassing way.

But the general idea is that internet and mobile service providers will be required to hold onto your metadata for two years.

Former Prime Minister Tony Abbott last year justified the program by pointing to its national security benefits.

“The important thing here is to give us the tools that we need to ensure that people who are a serious threat to our country are appropriately dealt with, people who are ready to engage in horrific terrorist activity and stating an intention in many cases to engage in mass casualty terrorist activities, can be dealt with in this country,” he said.

These rules are just getting stricter.

American whistleblower Edward Snowden chimed in with his thoughts on the scheme last year too, claiming a data retention scheme would not stop another terrorist attack.

“They’re not going to stop the next attacks either,” he said. “Because they’re not public safety programs. They’re spying programs.”

These are all fundamental issues in Australia. All of which will change the face of the country.

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