Chart of the Week: Aussie Dollar "Dirt Nap" David Franklin ([email protected]) Sprott Asset Management LP The Australian dollar has dropped to its lowest level in more than two and a half years versus the US dollar. The currency dropped below 95 cents US and briefly touched 94.71 US cents, a level not seen since October 2011. Economic weakness in China and a tepid domestic recovery are to blame. Recently, evidence has been mounting that the Chinese economy is losing momentum. The final reading of the HSBC China manufacturing Purchasing Managers' Index (PMI) for May fell to 49.2, down from a preliminary reading of 49.6, and below April's reading of 50.4. A result below 50 signals a contraction and the May reading was the first below 50 in seven months. In a recently published report, quoted by MarketWatch, JP Morgan stated that, "Overcapacity and declining rate of return on investment are the top challenges in the manufacturing sector, and may continue to drag on China's economic growth in the medium term." The potential slowdown in China, the biggest buyer of that country's minerals has sparked a reappraisal of Australia's economic prospects.1 In addition to the reverberations from China, the Australian domestic economy has also been showing signs of vulnerability. GDP figures released yesterday showed that yearly growth in the Australian economy slowed to just 2.5% in the first quarter of 2013, its weakest level in two years.2 Further, the Australian PMI index for manufacturing recovered slightly in May, but has been below the benchmark 50 level for the last 15 months, signifying a manufacturing contraction that continues. In May, the Reserve Bank of Australia cut its cash rate to a record low of 2.75% and has since indicated it has room to cut further. Adding to these woes, the Australian Bureau of Resources and Energy Economics projected in a May 22 report that investment in the mining sector has peaked after A$150 billion of mines were delayed or scrapped in the past year.3 According to data from Bloomberg, year-to date in 2013, prices for iron ore and metallurgical coal are off 23% and 10% respectively and are partly to blame for these project cancellations. Given the weakness in China and the poor economic data recently from Australia, we are bearish on our outlook for the Australian dollar. Source: Bloomberg, Sprott Asset Management -------------------------------------------------------------------------------- 1 http://www.marketwatch.com/story/china-manufacturing-data-show-weakness-in-may-2013-06-02 2 http://www.abc.net.au/news/2013-06-06/dollar-takes-a-dive/4736818 3 http://www.bree.gov.au/media/media_releases/2013/20130522-investment.html
I bought a snot load of silver on April 12-16 Precious metals (once again and despite the bearish outlook) have served the exact purpose for which they exist.
Aussie finished down 12.3% for the quarter, second biggest fall worldwide after the Syrian Pound. RBA likely on hold.
