Today i saw a interesting article where the RBA secretary explained the AUD might rise sharply purely due to hot money in asia looking for safe havens. This he explained would not reflect the fundamentals of the currency prompting intervention in the FX markets. I actually remember the RBA in 2009/2010 making the same statement around FX intervention. This could really only come in the form of expansion of the money supply i believe as the RBA has no chance of fighting the FX markets(selling AUD into markets to lower the currency). It should be noted that the SNB(Swiss national bank) have tried this to peg their currency to the EURO for the same reason, speculative hot money looking for safe haven's and it has been a total failure. I wonder if the RBA are expecting some gradual climb of the AUD or some overnight rush into safe haven's. Whichever happens there does seem to be the continued possibility of RBA expanding the money supply.
Pegging currencies brings its own problems. We could peg to the USD, but that's like pegging your sailboat to the good ship Titanic. Either way I wouldn't be playing the FX markets personally... it's going to be rough as.
"SYDNEY--Germany's Bundesbank is expected to begin adding Australian dollar assets such as government bonds to its foreign reserve holdings before the end of September, bankers say. The decision, which follows a two-and-a-half year review by the Bundesbank, adds to a wave of central bank demand for Australian-dollar exposures that has swelled over the last year, supporting the currency despite ongoing turmoil in the world economy, lower interest rates and a slide in commodity prices." This just reaffirms my view that the RBA cannot devalue the AUD even if it wanted to by selling AUD into markets with banks like Bundesbank buying. It appears the RBA's only option would be a expansion of the money supply.
hey Nukz, I'm interested in why you consider the SNB's currency war a failure. A look at the charts and it appears to have been a success.
I Agree but at what cost, the cost of fighting the markets is massive and while i believe the currency can be held there for a while a central bank i believe cannot fight the markets. When we hit the next hurdle(GFC 2) and hot money from around the world is looking for safety it will make it near impossible i believe for the SNB to hold the rate. The whole idea for the SNB intervening was because the Franc was getting "too" high and hurting industry and tourism(reminds us all of Australia). There was a interesting article on Zerohedge around this fight for the SNB which stated in a single week they had printed 17bn just to maintain the rate and another week 13bn. "These numbers were not seen since August 2011 when the SNB increased money supply by 50 bln and 40 bln per week buying the EUR/CHF at rates between 1.00 and 1.13. Now, however they are buying at 1.20 and are risking extreme losses, especially because many other central banks are dumping euros." Here is the full article quite interesting. http://www.zerohedge.com/news/guest...rints-pace-not-seen-eurchf-parity-august-2011 But all this aside i simply do not believe a single bank even being a central bank can compete with world markets for a long time if world markets want Francs they will move the price regardless.
What is the cost to devaluing your own currency if you don't go too far (eg hyperinflate) and you do it to stay at a rough parity with everyone else? Local inflation I guess? Spend the $$ abroad! (yes i know they'll come back home again, doh)
We could always link it to some other currency like the Swiss did. Actually I don't believe any of the AUD being a safe haven. It's been a commodity currency for too long and every hiccup in the world drops it down. I'm expecting exactly the same next time. This is one of the reasons that I think gold could be a better play than just protecting your savings - if you're in a position to do some stack and fiat equalisation. Also safe haven assumes that these currency traders have overcome their aversion to the US dollar - and considering that there's about 8000 billion of pension fund US dollars ripe for pillaging ("we'll give you an allocation of food stamps, sorry a pension when you're old instead"), I see the USD game continuing for quite a while yet. Definitely past this next crash. They'll patch this next one together with everything they can lay their hands on, that is where Bernanke will print, and then for the next one they'll do a USD devaluation, and by that time no-one will be much bothered since they'll all have their alternative trading mechanisms setup.
JulieW I am interested in hearing an expansion of your last paragraph. It seems by your wording that there is some sort of difference between Bernanke printing and a completely separate USD devaluation. Are they not one in the same? ie to Devalue you must print. On the original topic.....If the RBA was smart and not just looking to look after it's banking mates they would print and buy gold. Flooding AUD into the markets will devalue the AUD but still holding a tangible and tradable asset for when the AUD turns south hard and they can use it to buy back AUD. It would be a no brainer trade for them and great for us all.
I sent an email to Bob Katter a few weeks ago telling him that Australia should be buying gold, listing some reasons and also mentioning that such a move would increase his credibility amongst certain members of the community (like us) and may get him more votes. Thought he might be interested seeing he's such a loudmouth, but no response, go figure. :/ Might try Barnaby Joyce, he hates debt.
Lovey80, wiser minds than mine have laid out possible paths and I've tracked down some of the links that brought me to my conclusion. The base being a deflationary depression followed by very high inflation coupled with ongoing unemployment (ie. stagflation). This stagflation was cured last time by soaring interest rates and the last historical bull in gold. My timeframe is based upon the inability of the major economies to deal with their financial issues through political self interest. (ie being reelected where that matters, or keeping their snouts in the trough where it doesn't). As for the devaluation of inflation, the US has already knocked a fair piece of purchasing power from the dollar and their apparent disinclination to pander to the currency junkies by doing QE3 is because after QE3 Bernanke has admitted that they're in new territory. That is they don't know what will happen and if their 'fixes' will actually 'fix' anything. A lot of pundits say definitely not and hyperinflation is inevitable. Possibly, but that is the tipping point I believe where they will devalue. They will not follow the path of Weimar Germany. I read ages ago that the way to see the future potentials, is to try and think like a central banker. Well I've tried that and I can see the dollar becoming a unit of exchange like any of the currencies where it takes a hundred or so to buy a meal. That of course has been achieved by devaluation over the years (or lack of valuation initially). The issue the USA faces, is that its dollar is not backed by anything but promises. In order to gain the confidence of users shattered by roaring inflation, they have to back it with something. I believe that will be by relinking it to the value of gold in some way. With the world's central banks buying gold as fast as possible and the financial war against gold being fought so bitterly it's a very strong possiblity. I've seen reference that the BIS is behind the gold smackdown. That being the case, BIS must have a reason to keep gold affordable for nations and to try and get gold out of private hands with fear. If the S does indeed HTF with derivatives, nothing will save the world's financial systems other than resolute and central action. That will most likely be to our disbenefit overall. That's where the devaluation point occurs. By that stage I see most countries in blind panic and having a 'G' meeting that actually has action. Since like it or not, the USA is the Rome of today, all paths lead to its actions. I think they'll agree to surrender reserve currency status to an IMF/BIS basket that includes gold. USA will then relink its FRNs to this central agreement, and lose it's 40-50% in value as per Bernanke's last ditch move. Thanks for the question. You've really made me revisit my premises and conclusion, and I was reminded of just how fluid this situation is. No-one knows what is really going on and our elected representatives are ignorant of how to fix the circumstance. In the last depression, Australia went off the gold standard and dropped its pound by about 40 percent where it stayed until Keating relinked it to the reserve currency. If you consider the action of Keating linking the AUD to the USD (effectively the gold standard once again), you can see a precedent since the value of the currency is going to be linked to the money supply. In the case of the USD, by the time it gets to it, that is when that former reserve currency will become a local currency and be valued at its fundamentals, which based upon the USA's economy, will not be a thousand dollars for a loaf of bread, but could easily be 10. This interview at KWN lays out the mechanism of linking the USD to gold and it's possible efffects http://kingworldnews.com/kingworldn..._Devaluation_Coming,_Gold_to_be_Revalued.html This is has commentary on Bernanke's theory. http://alternativeeconomics.wordpre...alued-ben-bernanke-already-told-us-his-plans/ and so is this http://alternativeeconomics.wordpre...alued-ben-bernanke-already-told-us-his-plans/ and this commentator also http://sot-u.blogspot.com/2011/12/will-bernanke-devalue-dollar-by-40-like.html The issue of course is how to relink to gold or something that is acceptable, in all senses of the word and to all markets and consumers. They are not going to let go of the reins until they are strung up on lamp posts and even that will not hit the true puppet masters. I believe that the puppet masters are losing control (not consolidating their grip) and the arrogance of playing god has led them to the fatal mistake of ignoring history. So on an optimistic note, I see sunlight in 6-8 years and if you're on SS then you've seen one of the few ways to position yourself so that you survive financially in the new post Depression 2 world. Sorry to go on so long, but it's a complicated question!! p.s. seeing things as a central banker is very depressing :/, but I don't see a gold standard as benefiting them and so gold will only be a part of whatever the new reserve is.
Fx technical analisis: AUD/USD uptrend remains in place AUD/USD had spent early July consolidating the gains made throughout June. The daily close above the July 5 high at 1.0328 has maintained bullish sentiment, confirming yesterday's near-term trend reversal above 1.0276. This development now highlights a triple top at 1.0458 as the next key resistance level to watch, with a break above here exposing the March 19 high at 1.0635 thereafter. Support is located initially at 1.0276, followed by 1.0172. We note that the latter level must be taken out in order to derail the current advance. 5. Break above 1.0328 sustains bullish price momentum I buy in 1 or less and sell above 1.05
"RBA secretary explained the AUD might rise sharply" That's good enough reason for me to think the AUD will drop sharply.
I would argue that technically printing does not equal devaluation, but the correlation is uncanny . Going by my understanding that any valuation relies on another party to do the 'valuing', and talking from an international perspective. I don't think that any of the US/UK/Australia will buy gold. It may imply that their economic genius is fallable, or that Keynes' teachings are in question.
Of course you are right Dog, it doesn't necessarily mean devaluation. For example, the carry trade happening now is causing the AUD higher through demand for AUD. My question was, how do you devalue? Bernanke just can't call a press conference and announce that the USD in now worth 30-40% less. The same as the Chinese can't just Peg the RNB to the USD through Devine policy law. It must physically take measures to hold the valuation peg. Ie if china wants a 6-1 ratio with the USD then they must actually print 6-1 with the US to keep it there.. Am I missing something?
That's a good question. Maybe the answer lies in the question: "How is currency valued?" (that wasn't an attempt at a cop out) As valuation is determined by foreigners through trade, perhaps the answer is by increasing the amount of $USD outside of the US itself? How can we get a bunch of USDs to materialise outside of the USA, without actually printing them? One way would be to ask the international banks and central banks, etc, to use slightly less of them as reserves. They'd need to then swap those USDs for another currency perhaps. It's not technically printing, it is releasing USDs from stasis in reserves. Or something like that. Just a thought anyway. Is the other way USD is valued is through bond prices? I think the bond market is well and truly broken though.
Buy gold when AUD up sell gold whea AUD drops not rocket sience made heaps last 12 months ,makes up for losses in silver
I just saw this on Jim Sinclair's blog. It shows another possible path for USD devaluation. Bernanke may have little to do with it according to this article. http://www.voltairenet.org/Global-Plans-to-Replace-the-Dollar An additional reason for a new reserve currency (no surprise then that they need an endless supply of enemies to use up their over-production. Note also that Oz just agreed to trade in Yuan with China, joining the growing list of traders outside the USD. Timing is out in the article but the set-up looks possible. This result of course fits in with the views of many pundits. If this was enacted, the devaluation would no doubt be negotiated initially and thereafter the USD would be valued by the Forex markets.
Guest Post: While All Eyes Are On Europe, Japan Circles A Black Hole http://www.zerohedge.com/news/guest-post-while-all-eyes-are-europe-japan-circles-black-hole Australia much This is why I think the Euro is such a success, Germany can succeed all it wants and it will not push the up Euro, because they still have the PIIGS weighing it down. Currency devaluation without printing, the holy grail? The USD safe haven status will spike up and kill the US economy in the next crash... ironic
