I’ve been giving Charlie Aitken a little curry lately after his dreadful call to buy oil and iron ore on October 22nd this year (he was not alone, Money Morning also recommended going long into the OPEC meeting). But today, our Charlie is back with better advice, from The Australian:
Bell Potter executive director Charlie Aitken says the plunging oil price is another reason to expect the Australian dollar to plunge below 80 cents and its hard to disagree, as the deteriorating terms of trade will flow through to the interest rate outlook.
“The AUD remains great shorting and will play downside catch up to the basket of our major commodity exports,” Mr Aitken says.
“It will also play catch up to changing domestic interest rate expectations and I note Australian 3-year Government Bond yields are 10 basis points below the cash rate this morning, their widest discount so far.”
That’s right, though it’s questionable whether the falling oil price won’t actually improve the terms of trade given we’re a net importer. Moreover, the falling LNG also improves Australia’s welfare prospects, as well as GDP, by reducing the gas price shock to the eastern seaboard.
However, I expect the general risk off move and rising US dollar to still drag down the Aussie. It is under pressure this morning around 85 cents:
