Aussie Dollar vs US dollar

[boz]

i can tell you guys from first hand experience on the ground in China, Hong Kong and Taiwan, that pretty much ALL investors in those countries are looking at the AUD at the moment as the "safe currency" to buy.

Almost every businessman/investor I have spoken to in east asia has already bought, or is now buying up, lots of AUD. With the worldwide financial news continually touting australia as the strongest developed economy at the moment - can you blame them?

The story has been the same from everyone.
I dont really know what to think because im not a currency trader.... but i cant see a reason why we wont break above the USD. It might take a little while tho!


silversands - the RMB is still rock steady against the USD at 6.83:1.... so when you get quoted in USD prices, dont worry about it.
I work in the import, distribute and retail game.... the AUD is just making products cheaper for us, and making suppliers more eager to sell to Australia. Its only when the RMB-USD ex.rate moves that you need to worry about your buy prices - however you will see much greater effect from the USD-AUD rate.
.... this comes from 4 years of import buying experience, and in currently in China (Suzhou) right now product sourcing

I agree with you and there has been a huge speculation on the AU$ for the last few months. This is not good for the long term for australia economy. What is also worring is that RBA and government don't see the danger and don't see the risks when those money will eventually head back out of Australia

 

[BV]

I agree with you and there has been a huge speculation on the AU$ for the last few months. This is not good for the long term for australia economy. What is also worring is that RBA and government don't see the danger and don't see the risks when those money will eventually head back out of Australia

What's the risk?
Like every1 else they probably have a stockpile of USD and want to get rid of it now while it's worth something....

 

[boz]

What's the risk?
Like every1 else they probably have a stockpile of USD and want to get rid of it now while it's worth something....

The risk is unstability and the banana republic status, the AU$ dropped from 98 to 60 cents in 3 months last year, nothing on the fundamental side of australian economy has been done to avoid that again. In the long term, who is going to invest in australian businesses with the AU$ like a yo-yo? At least I think RBA should build up currency or assets reserves to slow the AU$ rise and to slow the eventual fall (they don't have to buy US$ to do that). After all if RBA doesn't do any hedging AUS businesses and banks would have to do it adding extra costs

 

[silversands]

Thanks Witzl and Hi Equity, you've given me quite a bit to ponder.

Witzl, have sent you a pm

 

[Aaron Sice]

woooooo - deep.

the RBA aren't hedging, are they....? tsktsktsk.

alright, you got my attention, i'm sitting upright now.

 

[boz]

woooooo - deep.

the RBA aren't hedging, are they....? tsktsktsk.

alright, you got my attention, i'm sitting upright now.

here you get few comment after today Monetary Policy Meeting Minutes, this one gives you an idea on RBA actions:

...
Policy makers have a “confidence that things will be trucking along this time next year,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “Given that outlook and confidence, you don’t need rates at this level.”

Also “they’re probably one of the few central banks in the world that’s not resisting their currency appreciating” because it’s helping contain inflation, Redican added.
...

So, it is not just my opinion that Australia care less about exchange rate then other countries. With the amount of foreign debt australia have our reserves should be way more then what they are now (at around 46 bil US$ in August, a level lower then Israel or Argentina).

 

[chilliaa]

The risk is unstability and the banana republic status, the AU$ dropped from 98 to 60 cents in 3 months last year, nothing on the fundamental side of australian economy has been done to avoid that again. In the long term, who is going to invest in australian businesses with the AU$ like a yo-yo? At least I think RBA should build up currency or assets reserves to slow the AU$ rise and to slow the eventual fall (they don't have to buy US$ to do that). After all if RBA doesn't do any hedging AUS businesses and banks would have to do it adding extra costs

So what can the RBA and govt do, if overseas investors want exposure to AU$?
The RBA is selling AU$ on the market at these levels. However the market is more powerful than the RBA, hence the continued rise.
At the moment there is significant hot money that is long AU$, in a free exchange rate environment there is not much you can do except be aware that the money is hot, and hence can exit rapidly as well.
Last year the RBA realised $6billion in exchange gain profits that it handed over to the govt.

 

[Aaron Sice]

so in other words, we run a risk of manufactured inflation to erode our debt, but the high aussie dollar should help this a little...?

i heard "oil prices going up before years end. thanks to increasing wholesale prices overseas". coughbullsh*tcough

 

[shuggy]

I'm liking the high AUD. I just transferred AU$100k to my o'seas bank acc to put down as a deposit on 2 condos in SE Asia. I may transfer more in a few months time when i think it will peak based on RBA interest rate increases but i don't think we will reach parity.

 

[boz]

So what can the RBA and govt do, if overseas investors want exposure to AU$?
The RBA is selling AU$ on the market at these levels. However the market is more powerful than the RBA, hence the continued rise.
At the moment there is significant hot money that is long AU$, in a free exchange rate environment there is not much you can do except be aware that the money is hot, and hence can exit rapidly as well.
Last year the RBA realised $6billion in exchange gain profits that it handed over to the govt.

The 6 bil$ gain doesn't have much of a meaning, if they want 6 bil$ they can just print them. It is extremely easy for RBA to make a profit on forex, they could just sell US$ the day before last interest rate rise...the scope of RBA is to keep the system working and stable.
also, it is more important to see who is losing money on forex and these are probably company that need to hedge on US$ for security about their exports (for example I would suppose a mining company would hedge either on commodity price and on the US$).
In any case you are right that the market would be stronger then RBA but a lot can be done to keep things more stable, for example RBA succesfully avoided the AU$ to drop below 60 cents during last year

 

[Aaron Sice]

parity will be a few years away - i imagine a profit take between now and then.

 

[Sunfish]

parity will be a few years away - i imagine a profit take between now and then.

Maybe. Maybe not. My punt is that it won't take long at all.

Another punt of mine is that the Chinese will choose to revalue their Reminb and that will be good for Rio and BHP (and others, of course) because it will make the stuff of their domestic expansion cheaper.

Chinese expenditure on infrastructure is massive and revaluing will make that cheaper. Their export goods would become dearer but no-one can compete with them anyway so they won't lose market share. From a business angle, the Chinese are crazy selling as cheap as they do. We couldn't make and distribute empty boxes for what we get some chinese stuff for.

 

[boz]

Another punt of mine is that the Chinese will choose to revalue their Reminb and that will be good for Rio and BHP (and others, of course) because it will make the stuff of their domestic expansion cheaper.

Chinese expenditure on infrastructure is massive and revaluing will make that cheaper. Their export goods would become dearer but no-one can compete with them anyway so they won't lose market share. From a business angle, the Chinese are crazy selling as cheap as they do. We couldn't make and distribute empty boxes for what we get some chinese stuff for.

I am not so sure what will happen if chinese decide to revalue their currency: that would mean they'll use more their own currency more for international transaction. Also to keep their currency down and pegged to the US$ thay have to buy lots of US$ or alternatively buy something using the US$ (like commodity or in share market or companys). If that would stop pegging the Yuan the high commodity demand and stock market rally could end and being not a positive news for BHP and RIO

 

[Sunfish]

I am not so sure what will happen if chinese decide to revalue their currency: that would mean they'll use more their own currency more for international transaction. Also to keep their currency down and pegged to the US$ thay have to buy lots of US$ or alternatively buy something using the US$ (like commodity or in share market or companys). If that would stop pegging the Yuan the high commodity demand and stock market rally could end and being not a positive news for BHP and RIO

Sorry Boz. Would you care to edit that and be less terse?

The only reason China has to buy USD instead of Ag is to protect their existing investment. One day they will stop throwing good money after bad. The US has a lot of creditor nations and they are looking at each other to see if there is any hint of panic selling. They all know that they (the oil states are part of this) will cop a bath if the USD is destroyed. There is a paradox here: The Saudis and Chinese must keep buying US treasury debt to keep it afloat, but by continuing to buy US debt they set themselves up for a dramatic loss later. They are between a rock and a hard place and they know it. They are already encouraging their citizens to buy gold.

 

[boz]

Sorry Boz. Would you care to edit that and be less terse?

The only reason China has to buy USD instead of Ag is to protect their existing investment. One day they will stop throwing good money after bad. The US has a lot of creditor nations and they are looking at each other to see if there is any hint of panic selling. They all know that they (the oil states are part of this) will cop a bath if the USD is destroyed. There is a paradox here: The Saudis and Chinese must keep buying US treasury debt to keep it afloat, but by continuing to buy US debt they set themselves up for a dramatic loss later. They are between a rock and a hard place and they know it. They are already encouraging their citizens to buy gold.

Sorry, I trade on forex everyday and I give some things for granted and might be not that simple.
Anyway, when china keep their currency pegged to the US$ thay have to balance the demand/supply, because they have a huge trade surplus and they sell heaps of stuff internationally they get a lot of US$ and instead of selling them in exchange of local currency they recycle those US$ into US gov debt or commodity or sharemarket or other foreign investment. If they don't do that and change the money in yuan the Yuan would lose the pegging and increase the value against the US$ and other international money (simple demand/supply rule). So I would presume if they'll increase the value of Yuan their need to recycle US$ would diminish and demand for commodity, shares and overseas investment will diminish too. But all is very tricky as it is difficoult to quantify those numbers and forecast what US and china trade number would be in case of devaluing the US$, it is also tricky to estabilish what real number of resource China need

 

[Sunfish]

Sorry, I trade on forex everyday and I give

(I assume you mean "Take")

some things for granted and might be not that simple.
Anyway, when china keep their currency pegged to the US$ thay have to balance the demand/supply, because they have a huge trade surplus and they sell heaps of stuff internationally they get a lot of US$ and instead of selling them in exchange of local currency they recycle those US$ into US gov debt or commodity or sharemarket or other foreign investment. If they don't do that and change the money in yuan the Yuan would lose the pegging and increase the value against the US$ and other international money (simple demand/supply rule). So I would presume if they'll increase the value of Yuan their need to recycle US$ would diminish and demand for commodity, shares and overseas investment will diminish too. But all is very tricky as it is difficoult to quantify those numbers and forecast what US and china trade number would be in case of devaluing the US$, it is also tricky to estabilish what real number of resource China need

That sounds as if they are between a rock and a hard place.

 

[boz]

That sounds as if they are between a rock and a hard place.

I also think China is in a very tricky situation as they risk to lose a lot of their money they invested in US, and when they search for a new worldwide currency that is to take that risk off and would allow them to put their money in a safe place and continue to run trade surplus and record GDP growth. But I believe the rest of the world would take measure as well to avoid trade imbalances (that is also a couse of GFC and eventually those imbalances will emerge again as well)