Australian dollar on support

See the latest Australian dollar analysis here:

Macro Afternoon

With all the hoopla about the negative ratings watch for the US, the price action for the AUD/USD over the past day or so is instructive. Back on Saturday, when I did the weekly update for the Aussie I said that  “when I look at correlated markets like equities I think their momentum is waning which may ultimately see a “real” risk off event. Global markets are due for one.”

Some of my fellow bloggers have alluded to this today and I reckon we may be getting one, particularly because of the thin markets into Easter.

The problem I have, and as the chart below shows, is that the Aussie (hourly chart) is right on support and while it’s holding it looks vulnerable. Ordinarily in a real risk off even the Aussie would get smashed. But don’t the ructions in Europe and the warnings about a US default simply serve to highlight the magnificent investment destination that is Australia and Australian assets.

The answer is a clear and unequivical yes, as long as you don’t think too hard about housing, so might the Aussie actually go higher?

It could, but I think if there really is a risk off event happening then the AUD might get back to my 1.0249 level, where the dip will be bought. Where else would you put your money at the moment: AAA rated, low sovereign debt, high interest rates, strongish growth, relatively low CPI, nominal full employment and China as a significant other. The Aussie is the Cinderella of the ugly sister currency contest.

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  1. …Greg Gibbs, a strategist at Royal Bank of Scotland in Sydney, expects the currency to peak at $1.10 by the end of the third quarter. As a result, the Aussie will be buoyed by “enormous investment plans for the next several years related to ongoing confidence in the commodities market.”

    Aussie Rides Commodity Boom as Credit Suisse Joins RBS in Seeing 4% Gains

    • When I was in Switzerland last year (which is as expensive as Australia – big shock going from Italy to Switzerland – its like going from NZ to Australia), I was really impressed with their currency and the way they do business AND government.

      The competition between the cantons e.g and the dedication they have to service and pride in their work was great.

      It seems the CHF is being bid up by Euro-holding Germans (and indeed Sterling Poms) however. Not much faith in Euro in Euroland. I think the Italians want their Lira back – probably in trillions denomination if they can….and the Greeks should have their drachma back too.

      In fact, Euroland would be better off if Germany went back to the Mark, but that’s a whole nother story.

  2. Precious metals as an alternative currency aside, I have to agree with this:

    “The Aussie is the Cinderella of the ugly sister currency contest.”

    Thanks for you thoughts, DFM.