Oz dollar overvalued says RBA

Discussion in 'Currencies' started by JulieW, Feb 28, 2013.

  1. JulieW

    JulieW Well-Known Member Silver Stacker

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  2. goldpelican

    goldpelican Administrator Staff Member

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    More like 30c surely.
     
  3. JulieW

    JulieW Well-Known Member Silver Stacker

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    Probably so - considering where the USD would probably be if it was not the world's reserve currency.

    Much as it would aggravate my spending plans in the short term, I think if Oz was at 90c or so we'd have the best of both worlds.

    In other words:

    [youtube]http://www.youtube.com/watch?v=oPhP-75rdos[/youtube]
     
  4. Clawhammer

    Clawhammer Well-Known Member Silver Stacker

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    I heard another RBA Rep on ABC News Radio talking about this. They're gunna start selling Aussie Dollars onto the FX market soon.
     
  5. Roswell Crash Survivor

    Roswell Crash Survivor Well-Known Member Silver Stacker

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    +1
     
  6. Au-mageddon

    Au-mageddon Active Member

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    Quick! .. lets race the US & EUR to devalue our currency :mad:
     
  7. Holdfast

    Holdfast Well-Known Member Silver Stacker

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    Keep stacking precious metal! ;)
     
  8. Dogmatix

    Dogmatix Active Member

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    Everyone will be doing this. Just ask Brazil, they hate this game too.

    Problem is, if your country is not in a recession/depression, then devaluing currency will cause local inflation.

    Or other big problems.

    The RBA don't want to make themselves public enemy #1 by busting our property bubble. They'll just keep walking the tightrope.
     
  9. renovator

    renovator Well-Known Member

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    :eek:
     
  10. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    I disagree. Although the RBA and other central banks are distorting the edges (on both the upside as well as the downside) the exchange rate is what it is as determined by the market. In recent years Australia has had significantly relatively more capital intensive investment opportunities than other countries which has led to a net increase in demand for the A$. The investment flow is expected (but not guaranteed, of course) to result in an increase in the production of Australian goods and services (as has already started happening over the past few yearsw with much more to come). This all increases our purchasing power (Yay!) but also means it decreases our competitiveness and relative attractiveness (Boo!).

    Ideally, the competitiveness pressures should actually stimulate innovation (and restructuring) and then we can enjoy even better purchasing power (double Yay!). Unfortunately we have experienced a raft of Govt policies being haphazardly implemented because of the influence of politically connected lobby groups and fear of change, with the consequence that more distortions and rigidities have been placed as stumbling blocks. Hence rather than revelling in the success of being in demand and innovating to be able to create yet more success, we have been using the fear of change and class warfare to actively try to kill off that initial demand (and the related benefits). If we're not careful, we'll kill our relative competitiveness and attractiveness so much that we will go back to a 70c exchange rate and then complain that inflation has kicked in and our real wages have plummeted.
     
  11. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    I sincerely hope that our dollar drops back to around 80-90c. There is simply too much structural damage happening to our economy, our jobs market, our price expectations and our abilities to do business with the world and ourselves for this to be worth it.

    The other incredible danger of a massively over valued currency is because of who is keeping it over-valued. Hedge funds and speculators. Anyone who remembers the carnage of the Asian currency crisis must surely realise the house of cards that is a currency that is supported by predatory speculators. This entire nation is at the mercy of hedge funds who can crash our dollar just as easily as they did to several Asian countries back then. We rose too high too fast and we have a long fall if this currency bubble pops.
     
  12. Dogmatix

    Dogmatix Active Member

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  13. systematic

    systematic Well-Known Member

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    I think people need to change their thinking to not allowing banks manipulating currencies as acceptable practice because it is that sort of thinking that will one day lead to a cashless system where the value of your on screen acccount will flux depending on the order of the day.
     
  14. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    I'll have to strongly disagree with this issue. Obviously there were many various influences that differed by country, but one of the biggest drivers was that the Asian Crisis countries (Thailand, Indonesia, South Korea, etc) had pegged exchange rates to the US$. That is what encouraged and enabled the crisis to happen to the extent that it did. George Soros et al would not have been able to achieve what they did if the central banks hadn't been artificially manipulating the currency to encourage cheaper debt repayments etc. (Not to mention most of the Asian crisis countries also had extensive misuse of the capital inflows prior to the crisis as a result of their high levels of corruption and crony capitalism. The correction of these distortions was basically a natural market clean out.)

    Even though Australia was affected by the Asian crisis, we were not hit anywhere near as hard because we had NOT played the currency manipulation game.

    Even though our RBA speculates with the currency it doesn't (touch wood) attempt to manipulate it extensively. This is a very good thing as it allows the real drivers of supply and demand to largely determine our exchange rate. That's why I said I don't think we are really over-valued or under-valued (instead we are simply "valued").

    As I said, our currency is more likely to be hit in the future with a psuedo-Asian crisis if we continue to implement policies that reduce the flow of resources, structurally increase the costs of doing business and discourage productivity improvements. A high terms of trade driven by the market is a good thing. A distorted terms of trade driven by the RBA will result in misallocation of resources and bigger bubbles and bigger adjustment costs.

    If you personally think the A$ is too high, then you should be:
    (a) saving for a rainy day
    (b) investing/consuming overseas while the prices are cheap to maximise the benefit before it depreciates.

    Not (c) encourage currency debasement to distort market prices, hide inefficient business practices etc and make US the slaves of foreigners rather than the other way around.
     
  15. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    No system as finely balanced as the Australian economy can stand a spike such as the one we are in without going into oscillation and severe imbalance. Those who like buying consumer goods think it's all good fun but it has cracked some of the foundations of our system and the damage is coming. It reminds me of a tsunami where the trough arrives before the wave and people all run out into the sea bed picking up souvenirs. The repercussions of our dollar being this high will hit in 2014 I think, and it will manifest in a dramatic increase in unemployment. The reason I say this is that there are literally hundreds of small production and retail businesses closing every week in every city, and there is a tipping point coming where this will increase on an exponential curve early next year as all of the businesses that are currently "waiting to see if things get better in 2013" pull the pin next January.
     
  16. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    I agree with all this and see it myself every day. The current capital wave and consequent large job opportunities in new industries should have continued for at least 5 years despite the global situation, but due to this government's mismanagement I reckon we'll see a large cliff as the investment wave finishes with not much to replace it. But nobody can really know for sure and it may reignite and go for the rest of the decade.

    Trying to predict it and artificially distorting our currency on the basis of such a prediction is a mug's game though and will end in greater tears. Individually trying to ride it out through the good times and the bad is the best option for everybody rather than thinking there's a saviour of some kind who can push a central planning button that will do more benefit than harm. Flex those knees and keep your balance ;)

    Given that I think there is a greater than even chance of a looming sharp drop in the A$ (for a variety of reasons) but have difficulty accessing any decent foreign investments I have been taking option (a).


    Edit: I really meant "due to our governments mismanagement". The past and current NSW government shares a lot of blame for many valuable investment opportunities being binned/delayed and the other states have their fair share of crap as well.
     
  17. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    In our business we are leveraging the high dollar currently by supplementing our products that we make in Australia with imported products to broaden our retail offerings, and if the dollar dives we will simply move our efforts back into expanding our australian production. It's the only pragmatic way to play it. As Bordsilver says, the idiocy of the current government has thrown a whole other layer of distortion into the system so we are really heading into a mess. Thank heavens the RBA don't have anything apart from interest rates to use to try and shift the exchange rate. To paraphrase someone else: The Labor party, the greens, the AWU and the RBA are like a bunch of morons fighting over the controls of an aeroplane that none of them know how to fly.
     
  18. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    It's a semantic point actually but in a distorted market - as the currency wars create - then the position that the AUD has found itself in is more a result of deliberate debasement by the safe haven currencies rather than the AUD being for want of a better expression "truly valued". My position is that the AUD is over-valued, the minerals boom prior to the GFC saw the AUD at about USD0.80, this is a "realistic" value, one however that the market does not meet. Rational markets within irrational markets?

    For the reason I've tried to explain above this is why I believe that there is no looming sharp drop facing the AUD, and it certainly in my opinion is not a greater than even chance.

    Another GFC event like in 2009 will cause the AUD to drop (if the USD survives), but, a 2009 like GFC event is while increasingly likely, is decreasingly imminent. In a nutshell, AUD to remain above USD0.97 for at least the duration of 2013, and into 2014. While US interest rates are low, the AUD will remain above USD0.95, add in the minerals boom then it will remain above USD1.00.
     
  19. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    My response is basically the Biggest Loser thread. We won't win by participating.

    Edit: And in terms if the future AUD direction, I keep flip-flopping. Current feeling is continuation of recent, followed by significant fall, followed by a potential resurgence past $1.10. This changes monthly ;)
     
  20. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    To put the issue another way, from the perspective of the currency cartel (i.e. USD, Yen, Pound and Euros - who account for 95% or more of global international settlements) they are enacting the currency war as an alternative way of defaulting on their debts built up from the likes of China who effectively undertook their own currency "war" for the past couple of decades (at the expense of their own citizens).

    As a minor side player, if we did want to participate in the currency wars and devalue the A$, then this effectively means that we need to be buying lots of currency from the world's currency cartel. Besides speculating on the volatility, why on earth would we want to own USD/Yen/Euro/Pound? They are toxic precisely because they are undertaking a currency war.

    Yes, Australia will be hit by the fallout, but by not participating (in aggregate) we'll be in a better position than if we buy shitty fiat that is being actively debased (refer to Value Creator's signature). Keep stacking.
     

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