Here is an interesting one that Australia may be focusing on soon. That is on devaluing it’s currency value vs the US currency. This was mildly suggested in a previous RBA announcement and there reasoning does make sense to some degree. If the Aud bounces to ridiculous highs now during the Euro crisis and during the possibility of another QE from the US the outcomes for Australia could be catastrophic..
While the RBA of Australia never wants to get involved with these sorts of things there are other reasons other than what is being suggested about the Euro zone that would make it a good idea to consider as well.. Here is the list of my concerns over the last month as Aud rose from a low of 1.02 to now sitting around the 1.05 area.
Numbered Concerns For the Current Australian Dollar Value
- China is in Slowdown, there is no indication of it improving yet and Australia is very effected by China so it should not be as high as it is based on this data.
- Secondly Rates are lower than usual at 3.50, so rising seems limited.
- Euro zone is still in major crisis and there is no end to there dropping in value to at least 1.20 in the future. Sorry all those bulls, the Euro Zone is not going to fix up anytime soon.. The Euro usually has a major effect on aud but lately aud has been rising while euro is falling. That is not showing a good balance at all.
- Inflation is Australia is becoming too high again, house prices are overpriced and less buying is shown overall. Wages are too high also so mass lay offs in future are inevitable. Cost of living is getting higher and higher everyday and that has a lot to do with the value of the dollar.
- Stocks will crash again once prices get to extreme highs of around 1.07 to 1.08, in fact the stock market is struggling above 1.06 in Australia in general. This is because exports are too high and high aussie makes it an expensive place to invest.. Meaning people buy else where.. Last few times aussie got to these types of highs it crashed which costs the economy heaps and so avoiding is a really good idea.
- Commodity prices are dropping, this is one the big banks are pumping are doing okay at the moment, but it is far from okay and they know it.. The only reason they are pumping it as a good investment on Bloomberg etc, is because they have buys higher than the current price.. Don’t be fooled by the banks, most of them want out of Gold.. And if they sell all, then what is Gold going to do, drop and drop big time.. I would expect a drop to at least $1200 by the end of this year, that’s a forecast for you. Okay, lastly gold is correlated with Aud as well so Gold staying below $1600 and aud up over 1.05 does not paint the picture properly either.
- The fact that the Australian is the most overvalued currency in Forex means that also it is the most predictable where it will start to drop again. ( 1.06 to 1.0850 the stock market and economy of Australia wanes )
So, with that all being said you can see why the Aud is beyond it’s normal value, in fact the Aud is the most overvalued currency pair out there. While this can be a way of losing money to some of the bulls buying high, to others that sell beyond 1.07 like last year it is like raining dollars.. Keep this in mind people, between 1.0650 and 1.0850 is the golden time to sell the aud vs the usd and place a stop between 1.09 and 1.1050 depending on your risk tolerance. Take profit starting at around 1.0250 and 1 dollar par. That is of course unless the RBA does not step in already, chances are we may have missed this big sell opportunity..