Our sharemarket has over-reacted to news of the US downgrade and continuing fears about European sovereign debt (Sharemarket closes almost 3pc down). As pointed out by financial economist Chris Joye, Australia’s economy is now largely tied to China and India and is not as exposed to the US and Europe as it once was:

 Why the US and Europe are actually not that important

I also wouldn’t expect the Australian dollar to continue falling, as Australian Government bonds will look increasingly attractive to investors across the world, and this will boost the demand for our currency. As reported by Bloomberg (Commodity currencies become a refuge):

“You want to stay away from the euro and dollar because this is really an ugly pair and there are alternatives,” Christoph Kind, the head of asset allocation in Frankfurt at Frankfurt Trustsaid in a telephone interview last week. “I like currencies like the Australian and New Zealand dollars, the Swedish krona and the Norwegian krone. They are AAA-rated countries with a currency they can manage and handle, and they have pretty liquid markets.”

While we should expect the markets to remain volatile in the short-term, over the next year, due to the resources boom, we can expect strong economic growth, particularly in Queensland and WA, and the Australian dollar to remain high. Of course, as noted by many market observers, the continuing global economic uncertainty should keep a lid on interest rates, which the developers of inner-city Brisbane apartments, projected to be in massive over-supply, will be very happy about (Two thousand new apartments, but no glut?).