THE Australian dollar was weaker today as global markets anxiously watched developments on the Crimean Peninsula, with Russian troops tightening their control over the Ukrainian region.
At the official market close, the benchmark S&P/ASX200 index fell 0.38 per cent, to 5384.3 points, while the broader All Ordinaries index declined 0.33 per cent to 5397.4 points.
Russia took control of the peninsula and appeared to occupy the territory, raising fears of military conflict between the two countries.
Oil prices climbed to their highest this year on the tensions. Nymex crude rose sharply in early Asian morning trade but has pared gains and is up $US1.19 at $US103.78 a barrel. Brent crude is up $1.39 at $110.46 a barrel.
But given the smallness of the Ukrainian economy, some commentators were prepared to talk down the potential impact on the world economy should tensions rise further.
“The Ukrainian economy is too small and its problems too specific to have a direct impact on the global economy or an impact via contagion,” said Shane Oliver, head of economics at AMP Capital, based in Sydney.
“The main risk has always been that it triggers wider Russian/West conflict — resulting in a disruption to gas supplies to Europe or a broader military conflict,” Mr. Oliver said.
Sean Callow, currency strategist at Westpac, said that while the situation is serious, the financial consequences don’t appear substantial.
Callow added that with U.S. and Germany not threatening anything more dramatic than not turning up to G8 meetings or maybe some degree of financial sanctions “it seems most investors will view the developments as having limited global impact.”
The international tensions meant a deluge of local economic reports were largely overlooked.
The Australian Bureau of Statistics reported company profits rose 1.7% in the fourth quarter from the third quarter of last year, while company inventories fell 0.5% in the same period. Both results were largely in line with expectations.
Australian capital house prices were flat in February, breaking an 8-month string of monthly gains fanned by record low interest rates.
Paul Braddick, economist at ANZ Bank, based in Melbourne, said the apparent cooling off in house price growth in February was likely misleading as the data didn’t match up with strong auction sales activity in places like Melbourne and Sydney.
“We think prices are going to continue rising reasonably strongly. I’m always wary about any data around January and February because seasonal patterns have changed,” Mr. Braddick said.
“It is at odds with what we are seeing in the auction markets. Auction clearance rates are pushing record highs. There has been a lot of momentum in that market,” he added.
Interest rates in Australia have been set at record lows since mid-2013 as the economy has slowed in line with a cooling in mining and business investment.
The low rates have fanned a surge in demand by speculators for property, raising fears of a property price bubble. However, first time home buyers are being priced out of the market causing demand in this category to fall to record lows.
