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Analyzing the Australian dollar, Up, Down, and UnderGary Dorsch Viewed from the outside, trading in the arcane world of foreign exchange might appear to be quite glamorous. However, attempting to anticipate the next major move in the Euro, yen, or British pound, can be injurious to one’s mental health or pocketbook, especially when schizophrenia often rules the day. Yet despite the enigma that surrounds the $4-trillion per day FX market, when staring at the weekly price charts, the outside observer will notice established and methodical price trends in the currency markets that can last for weeks, months, or even years. The Australian dollar is increasingly popular with currency speculators, because of its volatile price swings, a relative lack of central bank intervention, and lends exposure to Asian tiger economies and the “Commodity Super Cycle.” The “Aussie” dollar is currently the sixth-most-actively traded currency in the world, behind the US-dollar, the Euro, Japanese yen, British pound, and the Swiss franc, and changes hands in roughly 6% of worldwide foreign-exchange transactions.
In the 26-years since the Aussie dollar was floated in the open market, its highest value relative to the US-dollar was 98.50-cents reached on July 15, 2008. Its lowest point was 47.75-cents in April 2001.Rich in natural resources and occupying an area the size of the United States, Australia is a major exporter of agricultural goods, particularly wheat and wool, minerals such as iron-ore, gold, nickel, copper, and uranium, and energy, such as natural gas and coking coal. Currently ranked as the 14th largest in the world, Australia’s $825-billion economy is dominated by its services sector, which accounts for 68% of its annual output. Yet although the agricultural and mining sectors account for only 10% Australia’s GDP these sectors account for nearly 60% of the nation’s exports.For decades, Australia’s balance of trade has been linked to trends in the commodity markets, which in turn, has brandished the Aussie’s reputation as a commodity currency.
As the world’s fourth-largest producer of gold, the Australian dollar displayed an 84% degree of correlation with the yellow metal until 2008. Since then, for the 12-months ended June 2009, the Aussie dollar has been estranged from gold, and instead, became wedded to the copper market, displaying an 82% degree of correlation with the red-metal. Since coking coal and iron ore, key ingredients for making steel, are Australia’s two biggest commodity exports, the outlook for the global economy and demand for steel, are influencing the Aussie dollar. During the height of the global banking crisis, the Aussie dollar was tumbling in free-fall, skidding from a record high of 98.50 US-cents in July 2008, to as low as 60-cents level by October. To cushion the slide, the Reserve Bank of Australia (RBA) intervened to buy A$3.15-billion of its currency in October, as the turmoil in global markets sent the Aussie tumbling to five-year lows. That was the largest amount ever bought by the RBA in a single month and its first purchase since 2001. The RBA’s intervention was a paltry sum of cash in a market that trades about $265-billion per day. But the intervention provided a degree of psychological support, as traders paused to calculate what other tricks the central bank might have up its sleeves. As fate would have it, riding to rescue of the Aussie dollar and its mining industry, was Beijing’s surprise decision in November 2008, to spend 4-trillion yuan ($585-billion) on various infrastructure projects, equal to about 15% of the entire Chinese economy, after 20-million Chinese migrant workers had lost their jobs. “We face unprecedented difficulties and challenges,” China’s Premier Wen Jiabao told the parliament in Beijing on March 5th, “The nation needs to reverse the economic slide as soon as possible,” he said. Since Jiaboa’s speech, the Australian dollar began climbing higher along an upward trajectory, from 64-cents to as high as 82.25-cents in June. China bought one-fifth of Australia’s total exports in March, and its imports soared 80% in the first four-months of this year, with the export revenue cushioning the Australian economy from the dire effects of the global recession. Australian exports to China helped to offset sharply lower sales to other key trading partners, with exports to Japan down 36%, and sales to the US down 33% from their peak. Still, the biggest threat to Australian miners wasn’t the lack of demand from Chinese steel mills and factories, but rather locking in sharply lower prices for its principal commodities, with one-year contracts for coking coal fetching 55% less than a year earlier, and iron ore prices about 30% lower.
About half of the iron ore that Australia’s Rio Tinto (RTP) mined in the first half of this year was sold on a spot basis, with about 86% shipped to China. RTP reached final price settlements on iron ore shipments to Chinese, Japanese, Korean, and Taiwanese steel mills that cut contract prices by 33-percent.China, buyer of half of all traded iron ore, initially sought a price cut of 45%, but softened its demands after spot iron-ore prices rose above $90 /ton for the first time in nine months. To read the rest of this article, please click on the hyperlink below: http://www.sirchartsalot.com/article.php?id=113 Jul 21, 2009 321gold Ltd |
