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The Australian Dollar is pitched to fall significantly

Discussion in 'Business, Investment and Economics' started by skating101, Apr 20, 2012.

  1. skating101

    skating101

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    http://www.macrobusiness.com.au/2011/10/australian-dollar-valuation-report/

    This article from last year is fantastic, points to understand:

    Australian dollar is structurally higher (against US Dollar) than it was in the past. This is due to various factors. The five reasons for the structurally higher Australian Dollar are as follows:

    1) Terms of Trade - Australias terms of trade most notably due to the mining boom has significantly boosted the value of the dollar

    2) Interest Rate Differential - Australias higher interest rate has boosted investment in the dollar significantly as other economies have very low interest rates

    3) The US Dollar - The relative weakening on the US dollar via liquidity injections has increased the value of the Australian Dollar

    4) Global Risk Appetite/Aversion - Fear in the global markets has pushed money back to the US dollar/Yen and as this fear has subsided money has returned to riskier trades like the Australian Dollar

    5) Technicals - Something i know nothing about and wont try and explain

    This article was written support a structurally higher Australian Dollar and was a great article however the economic environment has changed significantly since the article was written. The five reasons could now easily be rebutted as follows,

    1) Terms of Trade - Australia's terms of trade has been in reduction recently due to the slowdown occurring in China, if this reduction in terms of trade continues then this will exert negative pressure on the Australian Dollar

    2) Interest Rate Differentials - The reserve bank is expected to reduce interest rates and this will reduce the interest rate differential, this will have a negative effect on the Australian Dollar

    3) The US Dollar - The US have put a hold on any further monetary easing and as such the US dollar should gain ground against the Australian Dollar

    4) Global Risk Appetite/Aversion - The situation in Europe diminishing further (as it appears to be with the long term yields of other peripheral european countries bonds increasing) will increase risk aversion and would lead to an increase in the the US Dollar and other safe assets

    5) Technicals - I dont know about technicals but from what ive read apparently we are in a long term downward trend

    So thats 4/5 of the elements that have increased the value of the Australian currency potentially weakening the Australian currency. Anybody want to make the argument that the Australian dollar could go higher?

    With little to drive the Australian dollar higher and alot of potential for the Australian dollar to fall the smart cash would surely be trying to invest in safer investments?
     
  2. CanOz

    CanOz Home runs feel good, but base hits pay bills!

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    and that would be what? The US Dollar? The EUR? LOL....

    If we go full risk off I'll bet my last dollar US treasuries will see some action...No brainer.


    CanOz
     
  3. skating101

    skating101

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    Why not the US dollar, their interest rates are at zero and monetary easing is off the table (for now) and the economic environment would need to deteriorate further before they did print so the US dollar would increase in value significantly during that period. During this same period the RBA has every intention of reducing interest rates further weakening the Australian dollar.
     
  4. CanOz

    CanOz Home runs feel good, but base hits pay bills!

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    I thought buying US debt was the same as buying US dollars?:confused:

    CanOz
     
  5. skating101

    skating101

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    Dollar or treasuries
     
  6. Glen48

    Glen48 Money can't buy Poverty

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    Word is once the Euro tanks all will run to the USD until it also tanks so guess then on its every man for themselves.
     
  7. Tyler Durden

    Tyler Durden

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    Perhaps people will run to gold?
     
  8. skating101

    skating101

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    Commodities (including gold) would fall significantly first just as they did in 2008 before rallying once liquidity was injected, instead buy US dollars then use those to buy gold prior to the printing
     
  9. skating101

    skating101

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    So why not buy US dollars?
     
  10. Glen48

    Glen48 Money can't buy Poverty

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    The way I see it the Feds will do all possible to keep Fiat afloat, once the Euro tanks all will rush to USD once USD tanks all will panic and every thing will go down including PM's silver 22-20 Gold 1500 maybe lower.

    Then they will look for security and go for PM's sending them to the moon.

    I think this will start to happen about Xmas and take a few yrs to get there 2016
     
  11. skating101

    skating101

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    For everything to go down something has to go up so if they US dollar drops then commodity prices have to rise
     
  12. Glen48

    Glen48 Money can't buy Poverty

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    True but like now every one is sitting it out. once it all tanks there will be a mad panic are every thing will go down until they see what options they have left and decide PM's are it.
    reckon we should see some movement about Xmas
     
  13. Glen48

    Glen48 Money can't buy Poverty

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    Of course look for choppers going to USA in large numbers as big Ben will want to drop out $150 note , $150 are better cos only need one trip not 3 .
     
  14. explod

    explod explod

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    Yep, after the Presidential election.

    Reading a very in-depth book on the currency subject at the moment and every country is trying to beat the other in keeping their money cheaper than everybody else to stay competitive in exports, manufacturing, tourism etc. You can be sure that a small nation like ours is not going to succeed against the big time so in my view our dollar will not fall and may in fact increase when the chopper really gets going to save the US before they in fact default on their unsustainable debt levels.

    Have mentioned the book before but anyone serious about wanting to know what is going on inside the Fed, the G's 2, 7, 20, the IMF etc., needs to get hold of this.

    "Currency Wars" James Rickards 2011
     
  15. skating101

    skating101

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    Thanks for the replies guys

    I understand that each currency is trying to devalue itself however as stated above the US is not in a rush to do QE3 however we are in a rush to reduce interest rates.

    In addition to this all other drivers of the Australian dollar are turning negative and we still have one of the largest housing debt bubbles in the world so what could you possibly think could drive the US dollar higher?

    Someone at least TRY and spell out a case for a higher US dollar
     
  16. explod

    explod explod

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    US interest rates rises. But they cannot do that as the debt servicing would crush them and Benanke has stated that this will remain till 2014.

    Money is being created(this is QE3 disguised) and loaned out at near zero interest to save banks around the world. Money for private individuals is scarce as banks do not want to loan as individuals are defaulting on debts/mortgages. So retail interest rates will continue to rise and our dollar will not fall in my view.

    I can find no case for a higher US dollar.
     
  17. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    All true + the fact the US do not want a higher dollar or they won't be able to compete with Europe. There is no case and there is no desire.
     
  18. Glen48

    Glen48 Money can't buy Poverty

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  19. skating101

    skating101

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    This is not about a higher US dollar but a lower australian dollar
     
  20. explod

    explod explod

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    Was merely answering your question.

    But it is specifically relevant as the lowering US dollar value has so far transferred into a higher Australian dollar.
     
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