Re: Will the US dollar rebound? possible?
Question?
Is there the possibility of the US dollar rebounding?
A lot of US dollar based stocks have been hit hard.
Is a 90 cent plus AUS dollar sustainable?
Stocks like NWS, RMD, ALL, JHX, BLD, MIG, are all being effected by the weak US dollar.
THe question is will it happen anytime soon.
Do we just stay clear of anything that has earnings in the US currency?
THe US stocks may be rallying, but in terms of aussie currency and returns for australian investors, the profits have been erased due to exchange rates...
Where as over seas investors in australian markets may decide to take profits off the table, with the strong run of the Aussie dollar.
Is that how it works>
Currency is very important for imports/exports. where is the balance for the Aussie dollar? where should it be at? Is it too high?
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I trust this information will be of some help to you and other ASF members:
Gavekal’s four scenarios for what lies ahead
by Gwen Robinson, Financial Times, 15 Nov 2007
The markets right now are facing an unusually high level of uncertainty, whether it be about future growth, the nature of banks’ balance sheets, the ultimate impact of the housing slowdown, the ability of banks to extend future loans…and, of course, how the new Fed chairman will react to all of this.
In their client newsletter, the pundits at Gavekal, the Hong Kong-based independent research and investment house, have neatly outlined four possible scenarios for the financial environment ahead.
Scenario 1: The Fed sticks to its assertion that the risks for inflation and growth are now in balance, does not cut rates any further and the US economy grows past its credit crunch. If this happens, it would be massively bullish for the dollar, massively bearish for gold and potentially bearish for HK and Chinese equities (which are now anticipating more rate cuts). It would also be very bearish for US Treasuries and government bonds around the world. Additionally, we would most likely see a rotation within the stock markets away from commodity producers and deep cyclicals (which have been leading the market higher for years) towards the more traditional “growth” sectors, such as technology, health care, consumer goods, and maybe even Japanese equities.
Scenario 2: The Fed sticks to its guns, does not cut rates, and the US economy really tanks under the weight of the credit crunch. In essence, the US would move into a Japanese-style “deflationary bust”. In this scenario, equities around the world, commodities, and the dollar would collapse, while government bonds would go through the roof.
Scenario 3: The Fed ultimately cut rates, but this fails to rejuvenate the system and get growth going again. This would likely mean stagflation. As such, gold and other commodities would do well, while stocks and the US$ would struggle. Excluding bonds, this is increasingly what the market is pricing in today.
Scenario 4: The Fed ultimately cuts rates, and succeeds in reining in the economy. This would be good news for equity markets, commodity markets, and the dollar, but of course, terrible news for bonds.
The market is still adamantly betting on Scenario 3, and thus one has to be concerned that the Fed’s hand could once again be forced by the market to cut. However, having learned from past experience, Bernanke should now work harder to rein in expectations, particularly as the data continues to point toward a resilient US economy.
And with the weak dollar and continued growth around the world, rising exports should help counter any slack in domestic consumption (which has not yet fallen off a cliff) and the US housing slowdown (which should have a fairly limited impact on the overall economy).
Additionally, the steepening yield curve should begin to help banks rebuild their balance sheets, and thus the Fed may actually feel that it has already done its part in resolving this crisis. Given the above, Gavekal concludes that it is quite likely the market will be surprised to see Scenario 1 unfold.