Australian Dollar – might not be a bad idea after all

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Is Now the Time to Invest in the Australian Dollar?

Following the financial crisis, the Australian dollar outperformed the major currencies. This situation occurred mainly because of demand from Australia’s largest trading partner China, Australia’s then booming mining industry, and relatively stable interest rates. However, this year, the Australian dollar recently hit a three year low after dropping a dramatic 15 percent since the start of this year.

 Australian Interest Rates Decrease

In a recent policy announcement, the Reserve Bank of Australia announced that it planned to decrease interest rates to 2.5 per cent – a record low. The RBA made this announcement in an effort to boost Australia’s economic outlook and it was the eighth interest rate cut since November of 2011. Additionally, as unemployment and retail sales are relatively weak, the likelihood of another interest rate decrease in the future is likely.

 Australian Dollar Increases in Value

Upon the release of the interest rate cut, the Australian dollar increased in value when compared with other currencies. Additionally, while the unemployment rate in Australia remained the same at 5.7 per cent in July, China released data stating that imports and exports increased in July – after a decline in this area in June. More specifically, China’s industrial production growth increased to a five-month high of 9.7 percent year-on-year in July. Additionally, the imports increased by 10.9 percent, and is the largest annual increase in the past three months. In turn, this situation may indicate an increase in demand for Australia’s exports from China. Consequently, the Australian dollar has been increasing in value since these announcements This trend appears likely to continue in the coming weeks.

Prediction: It may be a good idea to acknowledge this trend and invest in the Australian dollar to take advantage of these short term gains.    What do you think?

Author: Anna Timone

Anna Timone works in New York-based institutional money management firm that specializes in various investment strategies. Prior to that, Anna worked in Daiwa Asset Management (America ) Ltd, a foreign subsidiary of the Daiwa Asset Management, Co., the second largest investment bank in Japan, headquartered in Tokyo. Prior to Daiwa, Anna worked with ING Financial Partners and MetLife Insurance Company. Anna is a member of New York State Bar Association, Business Law Section and sits on the Securities Regulation Committee, Private Funds Committee and Drafting Committee for the NY Bar Association.

13 Comments

  1. Personally I think Australia is in need of adjustment housing, cost of living, debt levels and more.

    It’s primary producer role to China will continue but with less effect as China continues to diversify and enhance it’s own resources both domestically and in other continents like Africa to reduce influence of a single resource source (eg bhp/rio).

    Furthermore Australia doesn’t appear to have a plan B besides pull ‘stuff’ out of the ground and on sell, it sent it’s secondary industries overseas & it’s tertiary sector is not competitive.

    While govts could try to delay or soften adjustment it will come inevitably so my long term outlook for Aust it’s A$ is negative.

  2. No confidence in what is really a banana economy. There is much adjustment needed in my opinion before AUD looks to me like a buy.

  3. “Anna lives in the Upper East Side of Manhattan, New York.” – an indication of economic prowness and business acumen!

    That’s a secret I’ll never tell. XOXO, Gossip Girl

  4. Xin I couldn’t agree more. I’m a short of the AUD and have been for the last four months. It’s a long term trade for me which is something I not used to. I trade mainly the cocoa arb which involves cable and my position changes all the time so having a long term position is normally hard for me. Saying that, I’ve been very comfortable with my AUD short and it’s in my back book now. The way it look to me is very bearish and I’m looking for .70 to be honest.

  5. well done Jim.. big call at 0.7000. plenty of time to sell then!

  6. AUDUSD is due for a short term bounce, target towards 0.9300 to 0.9500.

  7. Looks like market is ripe for pullback as everyone wants to remain short = no new shorts = squeeze. Let’s see maybe a poll for 0,90 or 0,93

  8. I’ve been trading aud for quite some time and it often appears to me the aud just rises or falls for no apparent reason/market exaggeration from a single piece of data…it may well rally to 0.93 but by then the rba will come out and say something stupid causing a huge sell in aud (keeping in mind rba wants aud at around 0.82) so…sure invest in short term rises just dont get caught when rba randomly comes out and say something stupid…

  9. I have a buy limit order at 85 cents

  10. What do I think? Remain short with a stop above the 55 DAY MA. If it crosses. Get long. As simple as that.

  11. AUD is still one of the best triple AAA yield. Maybe it’s a range bound play for a while and best to play the edges?

  12. Agree for the short term, but what happens if that triple AAA gets down graded and others get their Triple AAA rating back. More of a longer term thought I know.

  13. Thank you very much for your comments!

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