Australia Sitting Pretty, But Has A Special Risk

These may be salad days for Australia. The Land Down Under is rich with raw materials and farmland, just as the world is clamoring for metals and grains at a feverish pace.

But the very scramble for Australia's commodity shipments may yet be its undoing.

Australia's All Ordinaries index surged Wednesday 3.6%. That's almost as much as the 4.2% gains lodged by the Nasdaq and S&P 500 on Tuesday, as the Fed made a 3/4-point 18ate cut.

But the All Ordinaries -- and Australia's economy -- had been getting a lift from soaring commodity prices. Metals and grains are big exports from Australia.

Troubles in the U.S., combined with demand for Australia's raw materials, sent that country's currency to $0.9418 last month, its highest against the greenback since 1984.

What happens if commodity prices, which some say are bubblelike, crash? Will that leave the Aussie at 90 cents? That would kill Australia's export business.

Or might the Aussie crash? That would set off its own set of problems. Import-based inflation would rise. Foreign investors would be scared off from new commitments.

Yes, you may say the Aussie would only be falling back to where it came from. But an economy hates currency convulsions.

It will be interesting to see what the All Ordinaries does Thursday. Commodities did, in fact, take a drubbing Wednesday in U.S. trade.

Gold, which had pushed above the $1,000 mark recently, plunged $59 to $945.30 an ounce. Silver lost $1.5150 to $18.4450 an ounce.

Grains also crashed. In fact, nearly every nonfinancial futures contract fell hard Wednesday.

The Australian dollar fell 1.36 cents to $0.9144.