Druckenmiller: Australian dollar to fall hard

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Macro Afternoon

ScreenHunter_01 May. 09 08.32

By Leith van Onselen

Hot on the heels of George Soros’ big short on the Australian dollar (AUD), Stanley Druckenmiller, founder of Duquesne Capital, has come out this morning calling an end to the commodity super cycle and recommending investors short the AUD.

Speaking at the Sohn Investment Conference in New York, where he presented “The Commodities Conundrum”, Druckenmiller argued that “China had misallocated resources and misread signals”, whereas “commodity producers ramped up production and misread situation”.  As such, the “current supply demand situation in commodities is deadly”, and the commodity super cycle is now at an end: “the past two years are not a correction but a trend”.

Druckenmiller also said to avoid commodities and short the AUD: “We think the Australian dollar will come down and will come down hard”.

That Druckenmiller has taken a similar view to Soros on the AUD is probably not surprising given that he was formerly a Managing Director at Soros Fund Management, where he served as Lead Portfolio Manager of the Quantum Fund and Chief Investment Officer of Soros. Druckenmiller famously earned $1 billion for the Quantum Fund by betting against and forcing a devaluation of the British pound in 1992.

The hedge fund sharks look to be circling that AUD. We don’t when the AUD correction will come, but when it does it will likely be swift.

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  1. hubris_and_hyperbole

    Can anyone give context to what “come down hard” means to a currency speculator? 0.5%, 1%, 5% …?

    • depends on average volatility of the currency pair. For AUDUSD “hard” would mean several multiples of average true range (ATR) -so yeah, 5% plus.

      • We are all speculating, but FWIW my guess is in the 10% to 15% range from a recent high of $1.05 USD = marginally sub $0.90 USD.

    • turvilleMEMBER

      down hard in FX trading terms normally means a very rapid movement – i mean 10% over 1 year would not be “hard” but 10% in a week would be very hard (e.g. 1.06 to .9540). I used to work in the FX market here from 1983 until about 1999. Early days liquidity was a bit limited but decent amounts ($100m + in a ticket) were not uncommon. There was a lot of “punting” and many more “punters”. In terms of extreme mocement – one day we opened trading at .75c fell to .625c and recovered to close at .73c. those erratic movements are not seen these days – too much price and volume liquidity but still possibilities exist for very sharp movements – remember Paul Keating’s “banana republic” statement – that had a big immediate impact and no cash for guessing which way the $ went!!!

  2. Since everyone is saying the the aussie will fall, with good reasons, i suppose it will be back to 1.03-1.05 within one week, as usual.

    • +1
      Yes, it seems the way to know what is going to happen these days with some certainlty, is to use the opposite data as presented by the ‘majority’ of economists…lol

      • That did not take long the Aussie is quite up and back to 1.025 🙁

        rate cut effect : Nil

      • look at the trend Dam – AUDUSD is down from nearly 1.06 to 1.025 since early April

        Its not just the immediate rate cut effect its the market perception over time that changes – the trend.

      • @CB
        noise I would say, it has been like that for the last 12 months between 1.02 to 1.06, flat, no trend IMO.

      • Chris – the trend can be long term, medium term or short term. It can also sharply diverge, and you can have long term volatility. No one has the foggiest what this one is, how long it will go for, and where it will end up – no one ever has and no one will in the future. Just cause Soros and his mate called heads more often than tails does not make them legands, rather statistical outliers a la Warren buffet.
        … bet on currency if you will, just dont pretend its anything other than gambling.

      • Peter Fraser

        Dam – Chris is correct IMHO – the dollar has to fall. That will create opportunities and pain depending on where your live, what your money is invested in, and what you do.

        All anyone can do is position themselves, and being forwarned is being forarmed. In the case of housing, where you are exposed, it might rise if employment in the Eastern states rises. Our housing will also become cheaper in the eyes of O/S investors. In other areas it will be hurt.

      • squirell, you had me nodding and agreeing from the start until you started talking about Soros/Buffet/statistical outlier/gambling.

        we’re not talking about putting $5 on No.6 at Randwick here…

  3. With the Euros talking about neg deposit rates, aren’t we still 3 years behind the curve? AUD remain could attractive even by the time it gets to ZIRP..

    • It’s not just investment money, it’s demand for $AUD from those who buy our goods and iron ore. If trade ramps down the dollar must adjust with fewer buyers of AUD, if it doesn’t we will really get hurt, although eventually it must adjust downward to accomodate.

  4. The Patrician

    If the AUD is coming down due to external pressures why should we risk the collateral damage attached to ZIRP to achieve the same end?

  5. When a tsunami hits your shores it’s always up. That smartarses like Mr D should come out and make statements at this point in time appears like gamesmanship of grand speculators to me.

    When a tsunami goes out, it creates the greatest damage. The tsunami OTC speculators and masters are playing a game that is both beyond and above the ordinary citizen and their advocates.

    They are literally tooling around to flush out the superannuation money, as the rest is in mortgage debt, and by hook or crook they will assault us. Regardlesss. Whether by mortgage debt or superannuation wealth, banks complicit or seconded.

    When most of the money that has been acquired or seconded by other means, it does not invaribly fall upon the the public, it ALWAYS falls upon us.

    White Pointers & Tigers sharks offshore and Bullsharks in the rivers of money that the public did not commission.

    Public enemy No.1.

    That we as the public allow these predatory activities to be considered lawfull is scandalous.

    Did Georgeouse George literally break the bank or did the appointed people fail the public?

    Barbarians at the gate? Hardly! Collusion or ignorant hubris!

    Sign me up

  6. Druckenmiller is spot on regarding China and the commodity based economies riding the Chinese bubble. China is on a automatic top-down investment pilot it cannot reverse. From now on the system will only give deminishing returns.

    More than 20 years of capital investments in the range of 50% of GDP is for sure an unprecedented financial suicide mission. When all these mal investments come home to roost, the house of cards will collapse.

    This debt/credit based monetary system doesn’t give any warning in the short run, but has devastating consequences in the long run. In my opinion it’s already too late to rebalance for the Chinese economy. Anyway, the Chinese were allways destined to grow old before they grow rich.

    A debt based fiat money system doesn’t align the real economy with future paper liabilities. It prefers financialization of the economy and moves it to speculation. Rather sooner than later this will be apparent in China. Readers familiar with the dutch language are advised to visit: http://www.economie-macht-maatschappij.com/geldsysteem-faalt.html

  7. turvilleMEMBER

    Its all a bit around the word “if” isn’t it. technically speaking a .9860 target might be realistic as a first port of call. if .9800 broken then .95 not unrealistic. If .9800 not broken then a retrace to 1.06 is not out of the question. Remember our interest rates are still significantly higher than most other stable domains. If A$ really sinks (aka .80c) and there is some stability in commodities (e.g. iron ore,coal, zinc and gold)then mining companies and stocks will be off to the races again and in a big way but again “if”.

    as for Soros and Druckenmiller. Remember Druckenmiller used to manage the Soros Quantum Fund when it made $1bn in 1992!!! they are not taking positions in the A$ for fun and cetainly not for 100 to 200 points.

    given their “hot track record” maybe we are in for some serious downside – time will tell and they have plenty of ammunition as do other hedge funds + leverage