# The Australian Dollar is pitched to fall significantly



## skating101 (20 April 2012)

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?


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## CanOz (20 April 2012)

skating101 said:


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




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


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## skating101 (20 April 2012)

CanOz said:


> 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.
> 
> ...




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.


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## CanOz (20 April 2012)

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

CanOz


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## skating101 (20 April 2012)

CanOz said:


> I thought buying US debt was the same as buying US dollars?
> 
> CanOz




Dollar or treasuries


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## Glen48 (21 April 2012)

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.


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## Tyler Durden (21 April 2012)

Glen48 said:


> 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.




Perhaps people will run to gold?


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## skating101 (21 April 2012)

Tyler Durden said:


> Perhaps people will run to gold?




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


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## skating101 (21 April 2012)

Glen48 said:


> 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.




So why not buy US dollars?


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## Glen48 (21 April 2012)

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


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## skating101 (21 April 2012)

Glen48 said:


> 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




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


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## Glen48 (21 April 2012)

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


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## Glen48 (21 April 2012)

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 .


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## explod (21 April 2012)

Glen48 said:


> 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




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


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## skating101 (22 April 2012)

explod said:


> 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.
> 
> ...




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


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## explod (22 April 2012)

skating101 said:


> 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.
> 
> ...




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.


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## Knobby22 (22 April 2012)

explod said:


> 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.




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.


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## Glen48 (22 April 2012)

USA needs to keep raising its debt ceiling until no one will lend them any more then it will be game on for the world economy, some countries are still a safe bet to invest in their currency's.

This is what will happen next: 

http://www.chrismartenson.com/blog/...email_newsletter&utm_content=node_teaser_7393


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## skating101 (22 April 2012)

explod said:


> 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.




This is not about a higher US dollar but a lower australian dollar


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## explod (23 April 2012)

skating101 said:


> This is not about a higher US dollar but a lower australian dollar




Was merely answering your question.



> Someone at least TRY and spell out a case for a higher US dollar




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


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## skating101 (23 April 2012)

explod said:


> 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.




Sorry my mistake I meant to say make a case for a higher Australian dollar


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## explod (23 April 2012)

skating101 said:


> Sorry my mistake I meant to say make a case for a higher Australian dollar




That is a more difficult question.  In the short term as things are turning down in employment opportunities, and housing looks over cooked the Aussie may retract some.

However looking down the track, we are self sufficient in food and energy, coal and gas.  The majority of other countries in trouble are not.  This will translate into a higher Assie in my view.

This is of the cuff but others (long term currency traders) will have a much better slant than I.


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## skating101 (23 April 2012)

explod said:


> That is a more difficult question.  In the short term as things are turning down in employment opportunities, and housing looks over cooked the Aussie may retract some.
> 
> However looking down the track, we are self sufficient in food and energy, coal and gas.  The majority of other countries in trouble are not.  This will translate into a higher Assie in my view.
> 
> This is of the cuff but others (long term currency traders) will have a much better slant than I.




That is also my attitude towards the Australian dollar, while there is no particular argument for the US dollar to go higher there certainly is an argument for the Australian dollar to go lower.

I am considering converting a significant amount of money to US dollars waiting for QE3 then using the US dollars to buy gold.


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## explod (23 April 2012)

skating101 said:


> That is also my attitude towards the Australian dollar, while there is no particular argument for the US dollar to go higher there certainly is an argument for the Australian dollar to go lower.
> 
> I am considering converting a significant amount of money to US dollars waiting for QE3 then using the US dollars to buy gold.




As said. I believe QE3 is under way via the financing by the Fed of Euro bank problems.

The US dollar is at an interesting juncture on the chart:

http://www.traderslog.com/quotes-charts/?sym=DX!&gclid=CID0tIWCoqYCFUaApAodpHmHng

We have a flag formation in the final stages and for me I'd be hesitant till I could see which way it breaks.  As it is now reporting season in the US continued bad news, as some expect, could see it go the wrong way.


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## skating101 (23 April 2012)

explod said:


> As said. I believe QE3 is under way via the financing by the Fed of Euro bank problems.
> 
> The US dollar is at an interesting juncture on the chart:
> 
> ...




Remember the US is one of the only country where when the economic environment turns down the value of their currency increase (risk aversion) just check the strength of the US dollar during the height of the GFC


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## ishakeel (23 April 2012)

This is really bad news - especially for people travelling overseas..


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## Superb Parrot (23 April 2012)

skating101 said:


> Someone at least TRY and spell out a case for a higher US dollar




ABC reporting this morning that 80% of US companies beating analysts expectations.
On the other hand, our Dollar is used by others as a proxy for China's wealth.


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## rcm617 (23 April 2012)

ishakeel said:


> This is really bad news - especially for people travelling overseas..




It's actually great news for our export industries, tourism and any industry competing against foreign imports. Also great news for Australian companies earning most of their income overseas like CSL, COH, SRX, BXB, AMC, QBE etc.


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## Glen48 (23 April 2012)

The world knows we are on China's coat tails so as they move up or down will influence the AUD, keep and eye on Spain once they tank I reckon a run to USD.


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## Tyler Durden (23 April 2012)

skating101 said:


> Remember the US is one of the only country where when the economic environment turns down the value of their currency increase (risk aversion) just check the strength of the US dollar during the height of the GFC




Curious as to why that is?


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## Glen48 (23 April 2012)

Here you go:
from Uncommon Wisdom.


The disaster in Europe should be pushing the U.S. dollar up more than it is. But it’s not, and that has me deeply worried ...

Worried that the next leg of the dollar’s decline may be right around the corner ... worried that the loss of the dollar’s reserve-currency status could occur more quickly than even I had expected ... and worried that the “X&@!” may soon hit the fan, across the entire globe.

Don’t get me wrong. The dollar may indeed soon rally a tad more. Which is what I expected for this part of the year, as Europe’s sovereign-debt crisis continues nearly unabated.

But the pathetic action in the dollar so far is very telling. Since the first of the year ...

 The dollar has lost 1.6% against the Aussie dollar, and 5.5% against the New Zealand dollar.

 In the non-euro countries of Europe, the dollar has lost 1.3% against the Swedish krona ... 3.2% against Norway’s krone ... 1.9% against the Swiss franc ... 6.4% against Hungary’s forint ... and a whopping 7.2% against Poland’s zloty.

 Against the Russian ruble, the greenback has shed a whopping 7.9%!

 In South America, the dollar is not faring well, either. It’s lost 5.5% against Mexico’s peso and an amazing 8.6% against Columbia’s peso.

 And in Asia, the dollar has lost 3.3% against India’s rupee ... 3.8% against Malaysia’s ringgit ... 3.7% against the Singapore dollar ... 2.9% against the Philippine peso ... and 2.5% against Taiwan’s dollar.

All told, against the euro ”” despite the European Central Bank’s (ECB) massive money-printing ”” the dollar has LOST 0.9% of its value!

Moreover, consider this: Measured by the widely monitored U.S. Dollar Index ”” the greenback is a mere 10.7% above its all-time record low of 70.7 made in March 2008.

Imagine that. It’s as if the Dow Industrials ”” whose March 2009 bear market closing low was 7,033.62 ”” were to have never bounced higher than 7,786 since then.

I repeat: At a time when the dollar should be staging a decent (although temporary) rally due to Europe’s MASSIVE economic and sovereign debt problems ...

The U.S. dollar’s performance is utterly terrible.

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So Why Is the Dollar Performing so Miserably?

There are two chief reasons ...

FIRST, savvy investors are anticipating another round of MASSIVE FED MONEY-PRINTING.

So am I. Odds are that it’s probably coming our way a lot sooner than even I expect.

For one thing, no matter how much money the ECB prints for Europe, it’s going to need help from Ben Bernanke and our Fed. Perhaps the Fed will print money and lend it to the ECB. Perhaps there will be currency swaps, where the Fed prints money and swaps it for euros with the ECB.

No matter what, Europe’s problem is not just the ECB’s. You can rest assured that as Spain and Italy start to buckle ”” which they are now doing ”” the Fed will be in there, helping out the ECB.

This means, of course, that both the euro and the dollar are going to suffer together.

Moreover, signs are coming to light that the U.S. economic recovery over the past few years has been nothing but smoke and mirrors.

Stocks are starting to wobble ... real estate prices are on the verge of falling again ... and the public isn’t buying the headline unemployment figures any more. The 8.2% official unemployment number is hogwash. The true unemployment figure is over 35% ”” and increasingly more and more people and investors realize it.

Plus, it’s an election year. And no way, no how is the Fed going to let the economy or the markets completely fall apart this year. Bernanke will print money at the drop of a hat.

More important as far as I’m concerned is ...

SECOND, the very disturbing trend I’ve seen over the last month. It seems that my forecast that Washington and Beijing are in cahoots with each other to further devalue the U.S. dollar is coming to pass.

In just the past month, Beijing has taken one step after another to boost the value of its yuan and to internationalize it ”” all at the expense of the dollar ”” without so much as a peep out of Washington.

Beijing has ...

 Allowed JPMorgan to promote and make a market in yuan-based money-market funds in Hong Kong. To the best of my knowledge, the first foreign investment bank allowed to do so.

Beijing has also ...

 DOUBLED the amount of regulated foreign investment bank money allowed in mainland China.

 While the Bank of China is now working with authorities in London to make that city a major Western trading hub for the yuan.

And most important of all ...

 Just this past week, for the first time ever, China’s bank regulators gave the country’s commercial banks its blessings in allowing them to sell short U.S. dollars.

That’s huge. And yet, hardly anyone in the West is talking about it.

I am, because in my book, it confirms one of my recent warnings ”” that a major dollar devaluation is in the cards ”” and that both Washington and Beijing are in on it.

Conclusion: While there’s still a chance the dollar may stage a temporary rally, the end days for the dollar (and the euro) are not far off.

Your action statement: Be prepared at any time to move into the best dollar-hedge-type investments under the sun ...

* Inverse ETFs on the U.S. dollar that profit when the dollar loses value, such as the PowerShares DB US Dollar Index Bullish Fund (UUP).

* Solid Asian-based income funds that offer good yields and the potential for currency appreciation as Asian currencies climb against the greenback.

And of course ...

* A solid diversified natural resource portfolio. The best hedges against a declining dollar, tangible assets.

Especially gold. Which although not yet ready to break out again, that day appears to be coming ever closer.


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## Tyler Durden (24 April 2012)

Glen48 said:


> So Why Is the Dollar Performing so Miserably?
> 
> There are two chief reasons ...
> 
> ...




But didn't the US refuse to lend any money to the IMF just very recently?


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## fatmango (8 May 2012)

The AUD will fall slightly as the interest rates cut kick in. Measured against the UK pound, the Euro and the $US however our easing will not be significant. The English economy is dependant upon the Europeans and the Euro is gong nowhere for at least two years. The US wants to keep the $US relatively low to the euro and Asian currencies as they try to export their way out of trouble, therefore we, by proxy or not, remain relatively strong......unless the Chinese economy and the Shangai index tanks. Anyone wishing to bet on that?


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