Since hitting a 2012 trough of USD0.9701 on Jun. 1, the Australian dollar has rallied 9 percent to USD1.0577. That’s provided a lift for US-based investors who own Australia-based stocks, and it’s juiced the dividends that those companies pay as well.

Support for the aussie has come from recent renewed appetite for so-called risk assets. But there’s also a growing perception from abroad that Australia and aussie-denominated assets provide something of an alternative safe haven in lieu of developed-world economies and currencies perceived to be on the edge of long-term weakness, such as the US dollar.

Australia’s central bank is confronting the impact of a still-ongoing investment boom, continuing demand for resources and solid fundamentals on the aussie and what it may mean for long-term domestic economic conditions.

It’s a difficult position, as a strong aussie, though reflecting some of the world’s best underlying fundamentals, including a sound fiscal situation, traditional monetary practice, proximity to the world’s fastest-growing region and comparative health vis-à-vis other stable, developed economies, could over the longer term take a toll on the domestic economy.

We were provided two official perspectives on Australia this, its position in the global economy and its domestic situation, one in the form of a monthly statement on short-term interest rates, the other via a quarterly report on broader monetary policy.

The bottom line, reading both, is that Australia’s problems are a lot better than those afflicting the rest of the world.

The Reserve Bank of Australia (RBA) held firm on its target cash rate on Tuesday, Aug. 7, in Sydney, in the wake of a string of solid economic reports, emerging optimism about solutions to problems in Europe and hope for more Chinese stimulus.

“With inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate,” said RBA Governor Glenn Stevens in a statement explaining the decision.

A private gauge of Australian inflation released the day before the rate decision showed prices rose only modestly over the year ending Jul. 30, even as the introduction of the controversial carbon tax sharply lifted utility costs, with price pressures elsewhere subdued. The TD SecuritiesMelbourne Institute’s measure of consumer prices edged up 0.2 percent in July; in June it fell by 0.2 percent.

The annual pace of inflation actually slowed to a three-year low of 1.5 percent, well below the RBA’s long-term target band of 2 percent to 3 percent.

Mr. Stevens also noted that global economic growth had softened in recent months and that commodity prices had declined. Australia’s terms of trade had peaked nearly a year ago, he added. But Australia’s labor market showed moderate employment growth, despite job cuts in some sectors.

The RBA, in a regular statement on monetary policy released Friday, Aug. 10, in Sydney, upgraded its outlook for economic growth and inflation but noted the resources investment boom might peak earlier than thought, in 2013-14.

It also admitted for the first time that the Australian dollar is squeezing the economy harder than expected, at the same time conceding it has limited room to cut interest rates because of the mining investment boom and carbon tax.

The central bank acknowledged the aussie was high despite the worsening global backdrop and lower terms of trade, the ratio of import prices to export prices, noting in its quarterly Statement on Monetary Policy, “It is possible that the persistently high level of the exchange rate may be more contractionary for the economy than historical relationships suggest.”

But RBA economists also upgraded their outlook for annual gross domestic product (GDP) growth in the December quarter to 3.5 percent from a May prediction of 3 percent after a surge in household spending that was helped by government handouts.

The central bank also raised its forecast for inflation; annual underlying inflation will strengthen to 2.5 percent in the December quarter, 0.25 of a percentage point higher than was anticipated in May. Over the next year prices will rise at the higher end of the RBA’s 3 percent target range.

The carbon tax, introduced last month, is expected to push underlying measures of inflation to the top half of the bank’s 2 percent to 3 percent target range by the middle of next year.

Although it warned there was “significant uncertainty” about when secondary effects from the tax would show up in prices, the RBA noted that “the carbon price effect on inflation will largely have passed by late 2013

It reiterated warnings about the threat posed by Europe as well as the potential for a faster than anticipated slowdown in China.

Australia’s terms of trade, which have fallen about 10 percent since their peak in last year’s September quarter, were expected to continue declining gradually. “But they could fall more quickly if global demand is weaker than expected,” the RBA said.

“This would lead to lower growth in domestic incomes, including government revenue, weakening domestic demand.

“Some resources companies have adopted a more cautious approach to investment opportunities currently under consideration (but to which they are not yet committed) given the more uncertain global outlook,” it said.

Resource investment–adjusted for its use of imports–was expected to subtract “modestly” from GDP growth over 2014 after accounting for more than half of the GDP growth in 2011.

Officials at the bank said recent low inflation readings were likely to have reflected a combination of margin pressure and better productivity growth.

The Roundup

AE Conservative Holding and charter member of the Portfolio Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) reported a 5.4 percent increase in statutory net profit after tax (NPAT) for the year ended Jun. 30, 2012. NPAT for fiscal 2012 was AUD3.41 billion, up from AUD3.23 billion in fiscal 2011.

Revenue edged up 1 percent to AUD25.37 billion, while earnings before interest, tax, depreciation and amortization (EBITDA) increased by 0.8 percent to AUD10.23 billion. Both metrics were at the lower end of the company’s guidance of low single-digit growth.

Telstra added 1.6 million mobile customers during the 12 months from Jul. 1, 2011, to Jun. 30, 2012, pushing its total to 13.8 million. This figure includes 6.6 million post-paid customers, 3.3 million prepaid customers and 3.1 million mobile broadband customers.

Telstra’s network is the key to keeping customers and growing that customer base. CEO David Thodey noted during the company’s conference call that “the quality of our mobile network is really helping to drive this growth. If you look right across the world, the network is a key differentiator.”

Telstra’s gains came largely at the expense of Australia’s third-largest telco, Vodafone Hutchison, a joint venture between Vodafone Group Plc (London: VOD, NYSE: VOD) and a subsidiary of Hutchison Whampoa Ltd (Hong Kong: 0013, OTC: HUWHF, ADR: HUWHY). Vodafone Hutchison has lost hundreds of thousands of customers over the past two years because of network reliability problems.

Telstra’s mobile business, which includes cellphones and mobile broadband Internet, now account for about a third of company revenue. Revenue for the segment was up 8.5 percent, to AUD8.7 billion. Telstra’s fixed-line revenue declined by 6.1 percent, in line with the rate of decline established during prior periods.

One negative for the company was its Sensis directories business, which is adjusting from print advertising to offering Internet advertising, where revenue fell 16 percent to AUD1.51 billion.

Mr. Thodey said of Sensis that it “is what it is” and that Telstra was a year into a three-year transition for the segment that would see two more years of double-digit declines before results would begin to improve.

The stock has fallen from an Aug. 6 close on the ASX of AUD4.07 to AUD3.76 at the end of trading Friday afternoon in Sydney, perhaps disappointed by the fact that Telstra continues to stick to its plan to use at least the initial portions of its AUD11 billion bounty from the de-commissioning and transfer of its fixed-line assets and customers to Australia’s National Broadband Network (NBN) to improve its wireless network.

Telstra announced no new “capital management” plans, neither a share buyback nor a dividend increase, noting during its conference call to discuss results that it’s “not contemplating capital management initiatives at this time.”

Rather, management touted an additional AUD500 million of spending on its mobile network and pledged to keep its dividend steady at AUD0.28 per share for fiscal 2013.

Telstra forecast low single-digit growth in revenue and EBITDA for fiscal 2013.

Telstra has traded well above our buy target of USD3.50–which we boosted from USD3.20 in the May issue–for some time now. The stock has benefitted from the late spring, early summer flight to safety brought on by fears of a reprise of the 2008-09 meltdown due to deteriorating conditions in Europe.

Our normal course is to peg buy-under target increases to dividend increases. But, as management has reiterated yet again with its fiscal 2012 result, Telstra will maintain its dividend for the foreseeable future. We’re in the process of evaluating Telstra’s growth prospects in light of its recent growth endeavors, always with an eye on the long-term sustainability of its payout. There is no question the current payout will be maintained, particularly in light of the additional cash that will flow from the NBN. And at these levels, with the recent selloff, Telstra yields more than 7 percent.

We’ll have more on Telstra in the August issue, where we’ll focus a Sector Spotlight on the company.

Fellow Conservative Holding Transurban Group (ASX: TCL, OTC: TRAUF) booked a 50.4 percent decline in fiscal 2012 statutory net profit after tax (NPAT) after it wrote down the value of the Pocahontas Parkway in Virginia.

Management had previously announced in June that it would reduce the carrying value of the asset based on revised lower revenue forecasts. The company booked an equity accounting charge for the year ending Jun. 30, 2012, of AUD138.1 million.

This writedown creates an accounting charge only; there are no cash impacts at the shareholder level.

Net profit for the year to Jun. 30 fell to AUD54.9 million from AUD112.5 million a year earlier. Transurban’s underlying proportional earnings before interest, tax, depreciation and amortization (EBITDA)–a better measure of operating performance–rose 9.1 percent to AUD784.0 million, boosted by higher toll revenue from its key CityLink road in Melbourne.

Proportional toll revenue increased 5.9 percent to AUD943.9 million with CityLink with an 8.5 percent increase on the prior corresponding period.

Underlying free cash increased 11 percent to AUD433.4 million, driven by revenue growth and a continued focus on cost controls.

Transurban declared fully free-cash-backed full-year distributions of AUD0.295 per share for fiscal 2012, a 9.3 percent increase over fiscal 2011 and the company’s third consecutive year of distribution growth. Transurban provided distribution guidance of AUD0.31 per share for fiscal 2013. Transurban is a strong buy under USD6.

Aggressive Holding Rio Tinto Ltd (ASX: RIO, NYSE: RIO) reported a 22 percent decline in 2012 first-half earnings to USD5.9 billion from USD7.6 billion a year ago, as prices for iron ore, copper and aluminum fell and costs at its operations gained.

Net income was boosted by a USD1 billion deferred tax benefit after Australia introduced its Mineral Resource Rent Tax (MRRT) on Jul. 1.

Underlying earnings of USD5.2 billion were down 34 percent largely due to lower prices. Underlying earnings before interest, taxation, depreciation and amortization (EBITDA) were USD10.1 billion, down 29 percent, and cash flows from operations were USD7.8 billion, down 39 percent.

The price of iron ore for immediate delivery to the Chinese port of Tianjin, a benchmark for Asia, averaged about USD141 a ton during the first half of the year, 21 percent lower than a year earlier. It’s dropped another 14 percent since Jun. 29. The price of aluminum has declined 20 percent in the past year, while copper has declined a similar amount during the same time frame.

Rio maintained its estimate for 2012 capital spending of USD16 billion to expand mines and build new operations. That includes a project to boost annual iron ore output in Australia’s Pilbara region to 353 million tons by mid-2015 from current capacity of 230 million tons. Spending in 2013 may be lower, and the company will “pause for breath” on any further expansion in the Pilbara beyond 353 million tons, Rio CEO Tom Albanese said on a conference call to discuss first-half results.

In light of all this, Rio still boosted its interim dividend by 34 percent to USD0.725 per share. The company also completed a USD7 billion share buy-back program at end of the first quarter. Rio Tinto is a buy under USD75.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• APA Group (ASX: APA, OTC: APAJF)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 26, 2012 (confirmed, CY/FY 2012 1H, end Jun. 30, 2012)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 5, 2012 (estimate, FY 2012, end Sept. 30, 2012)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Aug. 14, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 21, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Aug. 27, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 10 Down Under Digest
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 10 Down Under Digest

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 23 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 14, 2012 (estimated, FY 2012, end Sept. 30, 2012)
• Grange Resources Ltd (ASX: GRR, OTC: GRLLF)–Aug. 30, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 20, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Aug. 13, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 20, 2012 (estimate, FY 2012, end Jul. 31, 2012)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Jul. 24, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 10 Down Under Digest
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Aug. 29, 2012 (confirmed, FY 2012, end Jun. 30, 2012)