Aussie Dollar vs US dollar

[topcropper]

this is a good read, at least of a quite probable scenario (even if I don't agree with everything as usual )

Skimmed through it boz. This bit caught my eye though,....

........."Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. "They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can't keep buying bonds,".........


See ya's.

 

[boz]

Skimmed through it boz. This bit caught my eye though,....

........."Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. "They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can't keep buying bonds,".........


See ya's.

I did skimmed through too as it is very long, the first part is the more interesting...
The fact that China is switching into Hard assets is going around for a while. My opinion is that it is good for the short term commodity rally and we can see it from the spot price. But Ithink is neutral or bad for medium/long term. We have to keep in mind that most (if not all) resources company have debt that need to be repaid (as interest and capital form). So when you see China accumulating months if not year worth of supply they'll be in charge of pricing and the market as they could afford to stop buying for long time while resource company MUST sell (or bankrupt). Probably gold mining and food would still be safe from China market manipulation

 

[tubs]

Problem is, the US is racking up TRILLIONS in debt. The only way they will be able to pay it off is to print more money, which will devalue the USD.

Therefore, according to this simple argument, the long term prospects for the USD are poor. The AUD will rise significantly to the USD.

Also, when we come out of the recession, demand for commodities will be very high, which means demand for our exports will be strong, pushing the AUD high.

I wont try to guess numbers, but I imagine a prolonged rise in the AUD compared to the USD.

 

[meljup]

So, taking this all into account, I need some advice.
I have to pay a few thousand dollars of accommodation in the U.S before the end of the year, I need to save as much money as possible.
I could start paying it now at .75 and assume that is the highest it will rally to before Christmas, if I pay it early, I will be happier as well.
Or I could wait until September/October and hedge that it will be significantly higher. I don't like to leave it that late though, but if it means a significant saving, well, then I can cope.
What do you think ? Has it got a lot further to go up before October ?

 

[boz]

Problem is, the US is racking up TRILLIONS in debt. The only way they will be able to pay it off is to print more money, which will devalue the USD.

Therefore, according to this simple argument, the long term prospects for the USD are poor. The AUD will rise significantly to the USD.

Also, when we come out of the recession, demand for commodities will be very high, which means demand for our exports will be strong, pushing the AUD high.

I wont try to guess numbers, but I imagine a prolonged rise in the AUD compared to the USD.

Don't quite agree,
this is valid too in every point:

Problem is, Australia is racking up TRILLIONS in debt (most private). The only way they will be able to pay it off is to print more money, which will devalue the AU$.
Therefore, according to this simple argument, the long term prospects for the AUD are poor. The AUD will drop significantly.
Also, at present, demand for commodities is very high (speculation and China stacking up), which means demand for our exports will be weak when the world consumption will inevitably drop pressed by world debt bubble finally deflating, pushing the AUD low.

 

[chilliaa]

I did skimmed through too as it is very long, the first part is the more interesting...
The fact that China is switching into Hard assets is going around for a while. My opinion is that it is good for the short term commodity rally and we can see it from the spot price. But Ithink is neutral or bad for medium/long term. We have to keep in mind that most (if not all) resources company have debt that need to be repaid (as interest and capital form). So when you see China accumulating months if not year worth of supply they'll be in charge of pricing and the market as they could afford to stop buying for long time while resource company MUST sell (or bankrupt). Probably gold mining and food would still be safe from China market manipulation

I agree with most of this, except i dont think its a deliberate ramp and dump strategy by China.
I see it in several phases:
Phase 1: china starts using NEW foreign reserves to buy hard assets. Everyone is pretty happy, nobody notices too much, traders think its a great thing because it justifies the China Stronger For Longer theory, people start ploughing money into resource stocks again irrespective of long term fundamentals.

Phase 2: cracks start to appear, since New foreign reserves are going into hard assets and not bonds, countries with account deficits have to increase interest rates to keep up support for new issuance of bonds. This negatively impacts on demand, leading to reduced consumer demand for goods made in china.

Phase 3: China's new foreign reserves start to shrink as exports decline and its left with a bunch of hard commodity reserves priced above market value.

This is not a new problem for China, every country that has run up consistent current account surpluses has faced the same problem. Japan tried to fix this problem in the 80's by buying commercial realestate around the world (property never goes down right). THe result massive increase in supply and a hot overheated commercial property market.

Remember as well that hard commodities are just a 'cost input', into the final product. If costs skyrocket, then the final product price goes up which stifles demand. But this time there will be no easy credit to finance the increase in the final product.

 

[boz]

Phase 2: cracks start to appear, since New foreign reserves are going into hard assets and not bonds, countries with account deficits have to increase interest rates to keep up support for new issuance of bonds. This negatively impacts on demand, leading to reduced consumer demand for goods made in china.

This would probably happen despite China buying or not hard assets. When China buy assets that is money they put in world economy that would circle around the world in similar way then them buying other stuff.
I think commodity prices now are probably not far from a long term average (inflation adjusted), so China can't loose in stacking up. another thing that china absolutely don't want is a collapse of the mining industry with big drops in investment and financing new projects and mine closing down ( a bit like renters and future home owner don't want a slow down in new house building to put pressure on home shortages and prices as a consequence... ). But another thing China don't want is big mining lobby from country and mining industry that can lead to controlling prices (a bit like an OPEC for commodity).
So, in conclusion, probably china is happy that mining company make profits but not too much and they are happy to get those mining company more and more in debt to financing new project.

 

[WinstonWolfe]

One thing is for sure. Australia is living off ever diminishing equity.

 

[sonic]

Does anybody realise our Aussie dollar has gained more value against the US dollar in the last few days?

I think it's the highest since like November last year.

Could this be due to our government spending plan in infrastructure etc or is this a sign that our Aussie economy and industries are recovering? Or is it more to do with the strengthening of the regional economy/confidence especially in the Asia Pacific region?

I wonder how far up can the Aussie dollar go against the greenbacks. Anyone's got opinion?

Couple of things

1) AUD is a risk proxy if equity markets rally (as thye have in the past 2 months) so will AUD.
2) Its a commodity currency i.e. if commidities rally so will AUD you can see Oil has moved up in the same fashion.
3) Dollar made major moves on Friday night down after ECB cut their rates all currencies have strength against the dollar.

I think 80/85 levels are toppish its a sell at that level unless you truly believe in this equity market rally.

 

[bdc]

2) Its a commodity currency i.e. if commidities rally so will AUD you can see Oil has moved up in the same fashion.

Interested on how Oil moving up could possibly be a positive thing for our economy seeing as we use far more oil than we produce?

If ore/coal/yellowcake all went up and global food prices, I can see how that would help our economy.

 

[EstatePreneur]

Yesterday/today, our Aussie dollar just hit its highest value against US$ since November last year...

AU$1 = US$0.7734

So to sum it all up, can we say our Aussie dollar will mostly likely go up against the US$ for a while say in the next few months or maybe end of this year or even further until the US recover their trillions of debts in a few years time from now?

 

[HomeBuyAU]

I hate it when our dollar rises as I make most of my money in the USA. I lost around $1,500 AU in the last month from the changes. In fact I lose about $120 everytime it goes up 1c

What do you think it will be this time next month?

 

[WinstonWolfe]

Yeah big change in sentiment in the last 24 hours. That Dow 2.8% got things moving.....

Markets are up, AUD up, LIBOR dropped heavily, and our cash rate yield curve reversed 2 week down trend.

IMHO though, the markets aren't going to gain traction up or down...will be range bound for a long while yet.....the fundamentals are still sick....it is just the big players coming in and stirring things trying to take dumb money.

Japan, USA, Germany, UK, Sth Korea.....they are all sick puppies.....
China is the only one with a mega surplus, but hard to know how much growth they are capable of when export markets are hobbled.

 

[boz]

Japan, USA, Germany, UK, Sth Korea.....they are all sick puppies.....
China is the only one with a mega surplus, but hard to know how much growth they are capable of when export markets are hobbled.

What do you mean China is the only one with mega surplus?
china has a big positive trade position, but same is Germany. They all have budget deficit, this include China

 

[WinstonWolfe]

What do you mean China is the only one with mega surplus?
china has a big positive trade position, but same is Germany. They all have budget deficit, this include China

china and germany's dependence on exports is their weakness...their markets are contracting, and that has hit German GDP significantly over the last 2 years.

their tax revenues are down sharply and public spending up, same as Australia.

their landesbanken had serious exposure to toxic US cr@p.

look at germany's balance of payments...i.e. not just their current account surplus, but the capital account as well.

 

[sash]

You are correct about Germany but incorrect about China.

83% of China's demand is now internal....ie. only 17% of their GDP comes from exports whereas in Germany it is something like 38%!

china and germany's dependence on exports is their weakness...their markets are contracting, and that has hit German GDP significantly over the last 2 years.

their tax revenues are down sharply and public spending up, same as Australia.

their landesbanken had serious exposure to toxic US cr@p.

look at germany's balance of payments...i.e. not just their current account surplus, but the capital account as well.

 

[WinstonWolfe]

You are correct about Germany but incorrect about China.

83% of China's demand is now internal....ie. only 17% of their GDP comes from exports whereas in Germany it is something like 38%!

China's dependence on exports is not that straight forward.

- they have invested heavily in SE Asian countries that export heavily to the west.

- much of the domestic commerce is involved in export production i.e.
for each 1% rise in exports, GDP rises 0.82%.

- Exports as % of GDP: 2006 39.7%, 2007, 37%

China Daily
Wiki

 

[sonic]

Interested on how Oil moving up could possibly be a positive thing for our economy seeing as we use far more oil than we produce?

If ore/coal/yellowcake all went up and global food prices, I can see how that would help our economy.

Good point. The logic is that if oil goes up most of the other commodities will go up to which they generally do and they will help the Australian economy as we are predominantly one of the economies that is a "commodity economy" i.e. exports commodities.

 

[Ausprop]

and natural gas is sort of tied to the oil price

 

[Strannik]

didn't notice it going up, should've sold a few bucks while i had a chance