Aussie dollar still a traders' darling

AgH20 · Aug 11, 2012

While central banks treat the Australian dollar as a reserve currency and the situation in Europe is uncertain, the local unit is set to be high and the euro may sink against the US dollar.

As two of the most frequently traded currency pairs among Australia's growing band of private forex traders, trends in the Australian dollar versus the US dollar and the euro versus the US dollar are followed closely on screens in suburban studies.

One view on future movements of the Australian dollar and euro against the US dollar comes from Kathy Lien and Boris Schlossberg, both managing partners of BK Forex Advisor, which has close ties with leading foreign exchange broker FXCM.

The broker brought them to Australia this week to give a series of presentations to mainly private traders.
Lien and Schlossberg show some enthusiasm for the strength of the Anglo resource economies, notably Australia, Canada and New Zealand.

In particular, Lien is enthusiastic about the strength of the New Zealand economy, given the major increases in food prices in recent months.

However, an analysis by Capital CFDs of trading on its platform released during the week shows that the Canadian and New Zealand currencies do not usually feature on the screens of private traders. Instead, the most popular types of trading were in the Australian dollar/ US dollar pair, comprising 28 per cent of client trades, and the euro/US dollar pair (14 per cent of trades). Gold trading accounted for a further 12 per cent of transactions.

Trading in the equities market trailed the field, with CFDs on the Australia 200 index and a Wall Street index accounting for 8 per cent and 5 per cent of trading respectively, on the Capital figures.

Although that is a result for one platform, it is known that the Australia dollar/US dollar pair is very popular generally with Australian traders, particularly given its recent strength against the US dollar. Lien and Schlossberg agree that strength will continue.

Although the Australian dollar has come off its highs against the US currency, thanks to a decline in commodity prices, the accepted view is that its price versus the US dollar is being held up by reserve banks and investment funds treating the Australian dollar as safe haven.

Schlossberg says unlike many other government bonds, the Australian bonds are AAA-rated and still have a reasonable return, so they meet the investment criteria of many investment trusts. He says a crucial level for the Australian dollar is probably $US1.10, as it's at that point the Reserve Bank of Australia will become concerned about the effects of the dollar on exporters.

As for the euro, Lien and Schlossberg say there is still some doubt about whether Greece can remain in the euro without substantial debt forgiveness.

However, there are still many reasons to keep the currency.

Schlossberg says that Germany may seem reluctant to continue to bail out other countries, but it should be remembered that Germany has done very well out of the euro.

The single currency means it can sell its products at competitive prices throughout Europe.

A great deal depends on the actions of the European Central Bank president, Mario Draghi, but a long-term solution will involve considerably more centralisation of fiscal policy, the pair say.

The Australian Financial Review-Mark Lawson
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http://afr.com/p/personal_finance/s..._still_traders_darling_ZxEHNbX8zJS8KNH1MmCHFO

Water&Food · Aug 11, 2012

afr.com said:

[Germany] The single currency means it can sell its products at competitive prices throughout Europe.
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Does it? Could this also be a deflation in disguise on the horizon?

Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further
http://en.wikipedia.org/wiki/Deflation#Causes_and_corresponding_types
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Sure seems so. So, we should be be ready to buy on the uptrend, only then will you be sure (close enough) prices will not get any lower.
Knowing the Germans, they will factor this in. I expect to be head fkt.

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