DOES A WEAK AUSSIE DOLLAR SIGNAL A SLOWDOWN IN BUSINESS?


The economic turmoil witnessed over the past few weeks is a reminder that fundamentals play an important role in determining price trends in our various trading markets. A debt crisis is a basic fundamental, and due to the interdependence of our global markets, it can send shockwaves felt around the globe. Currencies weaken and strengthen. Commodity and futures markets react since the price for farming exports will be impacted down the road come harvest time. Balances between exports and imports become disrupted. Inventories may have to be revalued. Management teams must suddenly review their near term plans and adjust where necessary.

The European debt crisis and the uncertainty surrounding the Euro and its future were quick to cause the expected flight of capital to safe havens. In this case the U.S. Dollar and the Japanese Yen were the primary beneficiaries in the forex market. The flight into precious metals, Gold and Silver, was more pronounced. Traders, that had graduated from forex demo accounts and had dabbled in the “carry trade” business, raced to their respective trade desks to unwind unprofitable positions.

A “carry trade” is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a higher yielding security, a bond or stock, in a different currency.  A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used. If the destination currency weakens, then the trader is exposed to a loss unless he has hedged his bets.

Many hedge funds and traders have used the Dollar and Yen as the “base” currency and invested where rates were higher, typically in Australia and New Zealand this time around. The Australian economy has been one of the strongest of the G20 countries.

The unwinding of carry trade volume could signal a further downturn in the Aussie Dollar. If it breaks through 0.85, then deeper cuts can be expected.

The Australian economy has outperformed many around the globe. GDP was up 2.7% in 2009, unemployment is half of what other countries are experiencing, machinery and equipment spending is also up, and China’s demand for resource exports remains unabated. The Central Bank has raised interest rates, and it appears that Australia may have skirted the global recession that has gripped Europe and America.

If the Australian economy is performing at near trend, then what are businessmen to make of all of this global turmoil? Fear and uncertainty, not market fundamentals, drove the Aussie Dollar to an eight-month low of 0.8517 on Wednesday. The consumer sentiment index showed a seven per cent slide for May, its biggest percentage drop since the height of the credit crunch in October 2008. Global turmoil and uncertainty suggest caution as the best strategy, or as the old adage goes, when in doubt, hold onto your position.

The Jordan Valley

Promise land ......almost here!!

Uncle Tree's House

Putting music to words, and words to pictures ~

ReBlogIt

Great Content from around the web ......

Crazy Green Thumb's

Chronicling a delusional gardening experience.

Big Jew on a Diet

nothing tastes as good as skinny feels (apart from butter) - Kate Moss

Show Must Go On!!!

- On with the Show

My Foray Into Food Storage

A regular gal learning about Food Storage, Home Cooking, Canning, Gardening, and more!

Nuke's -- n2l's

execution watch

rmactsc

Survival Considerations When The SHTF

Courtesy Girl Keeps It Real

Modern. Southern. Sharp.

Right of Mississippi

82.7% Correct on Mississippi Politics So Far!

Attenti al Lupo

www.attentiallupo2012.com

Among The Joshua Trees

Take my love, take my land. Take me where I cannot stand. I don't care, I'm still free. You can't take the sky from me. Take me out to the black. Tell them I ain't coming back. Burn the land and boil the sea. You can't take the sky from me. There's no place I can be Since I've found Serenity......But you can't take the sky from me.

Past, Present, & Future

Just another WordPress.com weblog

Matt on Not-WordPress

Stuff and things.

Western Rifle Shooters Association

"You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be." - VADM James Bond Stockdale

John Jacob H's RKBA Commentary

A well regulated Militia being necessary to the security of a free state, the right of the People to keep and bear arms shall not be infringed.

Samina's Forum for police support

A great forum of promotion of friendship and co-operation between citizens and Police Officers. Come join us.

stillness of heart

MUSINGS : CRITICISM : HISTORY : PASSION

Follow

Get every new post delivered to your Inbox.

Join 291 other followers

%d bloggers like this: