AUD is a risk proxy.

[Peter]

SYDNEY (MarketWatch) -- The Australian dollar AUDUSD -0.07% isn't a safe haven for investors, RBC Capital Markets strategist Sue Trinh said in a note Friday. Even though the country has a triple-A credit rating, the liquidity and depth of its bond markets aren't sufficient for safe-haven status, Trinh said. The currency is a risk proxy, Trinh said, and has one of the highest correlations with equity markets within the Group of 10 major economies.

http://www.marketwatch.com/story/au...haven-rbc-2012-06-14?link=MW_home_latest_news

 

[jpanggy]

But bundesbank is trying to create the illusion that it is a safe haven:
http://www.macrobusiness.com.au/2012/06/bundesbank-confesses-plan-to-poach-australian-manufacturing/

They need some currency to absorb the devaluation of euro. This can drive aud to above usd again. USA and china will be happy with this move too.

 

[thatguy]

From my research I have found that (to anyone who remotely has the ability to affect Forex values for their own currency) there is not one good reason to have a high dollar value and many good reasons to have a low dollar value. How to achieve a low dollar value seems to be the main game and the Euro is winning and the USD is loosing. The US economy cannot suffer a high USD (and thus will actively fix that (i.e. QE3)) and the German economy is loving the low Euro cost (and thus encourages anything that devalues it (i.e. Greek situation)).

 

[jpanggy]

From my research I have found that (to anyone who remotely has the ability to affect Forex values for their own currency) there is not one good reason to have a high dollar value and many good reasons to have a low dollar value. How to achieve a low dollar value seems to be the main game and the Euro is winning and the USD is loosing. The US economy cannot suffer a high USD (and thus will actively fix that (i.e. QE3)) and the German economy is loving the low Euro cost (and thus encourages anything that devalues it (i.e. Greek situation)).

They are not encouraging it, rather they keep it in limbo. For as long as it is in limbo, then the currency devalues controllably. Once it defaults or it is out of the sticks, then no more control.

 

[thatguy]

From my research I have found that (to anyone who remotely has the ability to affect Forex values for their own currency) there is not one good reason to have a high dollar value and many good reasons to have a low dollar value. How to achieve a low dollar value seems to be the main game and the Euro is winning and the USD is loosing. The US economy cannot suffer a high USD (and thus will actively fix that (i.e. QE3)) and the German economy is loving the low Euro cost (and thus encourages anything that devalues it (i.e. Greek situation)).

They are not encouraging it, rather they keep it in limbo. For as long as it is in limbo, then the currency devalues controllably. Once it defaults or it is out of the sticks, then no more control.

Yup that's it... keeping it teetering without going over the edge is where the real skill lies

 

[Lovey80]

Hmmm I have to completely disagree with you there thatguy.

Firstly, China wants our resources more than we want their thingamajigs. With a high AUD it makes importing our resources more expensive in RNB terms. They would prefer a strong USD and a weak AUD.

Let's see a high AUD may expose the fact that in real terms Australian productivity has been falling steadily for years. It will force us to be more productive or see jobs and sectors go offshore to those that are more productive.

A high AUD reduces inflation and the need for wage increases which makes us less productive in comparison. The low AUD for all those years simply masked Australia's decline in productivity. The rise in the AUD just brought about the wake up call.

Part of the reason the AUD is so strong is because investors want to cash in on the high productivity of China and because it is hard to do so, they use us as a proxy.

Artificially keeping a currency low sure does make a country in exchange terms seem more competitive but it is only temporary. If the US and Europe actually had a choice in the matter they would keep their currencies strong and reform their economies to be more efficient. The easy political choice is to inflate/devalue to do the work for them in the short term.

China could easily allow the RNB to increase in value and still be more productive than the rest. By not doing so is creating a bubble that will have disastrous effects down the track and they will be forced to do so.

 

[thatguy]

Hmmm I have to completely disagree with you there thatguy.

Firstly, China wants our resources more than we want their thingamajigs. With a high AUD it makes importing our resources more expensive in RNB terms. They would prefer a strong USD and a weak AUD.

Let's see a high AUD may expose the fact that in real terms Australian productivity has been falling steadily for years. It will force us to be more productive or see jobs and sectors go offshore to those that are more productive.

A high AUD reduces inflation and the need for wage increases which makes us less productive in comparison. The low AUD for all those years simply masked Australia's decline in productivity. The rise in the AUD just brought about the wake up call.

Part of the reason the AUD is so strong is because investors want to cash in on the high productivity of China and because it is hard to do so, they use us as a proxy.

Artificially keeping a currency low sure does make a country in exchange terms seem more competitive but it is only temporary. If the US and Europe actually had a choice in the matter they would keep their currencies strong and reform their economies to be more efficient. The easy political choice is to inflate/devalue to do the work for them in the short term.

China could easily allow the RNB to increase in value and still be more productive than the rest. By not doing so is creating a bubble that will have disastrous effects down the track and they will be forced to do so.

Totally agree with all those points, but without a doubt it's a race to the bottom as all those benefits occur to people who have no ability to manipulate the exchange rate.

Short term gain for long term pain wins elections... sad but true

 

[jpanggy]

Hmmm I have to completely disagree with you there thatguy.

Firstly, China wants our resources more than we want their thingamajigs. With a high AUD it makes importing our resources more expensive in RNB terms. They would prefer a strong USD and a weak AUD.

Let's see a high AUD may expose the fact that in real terms Australian productivity has been falling steadily for years. It will force us to be more productive or see jobs and sectors go offshore to those that are more productive.

A high AUD reduces inflation and the need for wage increases which makes us less productive in comparison. The low AUD for all those years simply masked Australia's decline in productivity. The rise in the AUD just brought about the wake up call.

Part of the reason the AUD is so strong is because investors want to cash in on the high productivity of China and because it is hard to do so, they use us as a proxy.

Artificially keeping a currency low sure does make a country in exchange terms seem more competitive but it is only temporary. If the US and Europe actually had a choice in the matter they would keep their currencies strong and reform their economies to be more efficient. The easy political choice is to inflate/devalue to do the work for them in the short term.

China could easily allow the RNB to increase in value and still be more productive than the rest. By not doing so is creating a bubble that will have disastrous effects down the track and they will be forced to do so.

Agree with you on China wanting our resources, we in turn wants the finished goods from china (t-shirts, steel, manufactured goods) which is more profitable for china than it is for us. The winner in Australia are the mining guys, but the general public loses.

Commodities are priced in USD and there is a market price for them, so whether AUD dies or rises price of iron ore is in USD.

During normal times, keeping currency stable and strong is good, but during these times USA, Germany and China are losing export customers (everyone is broke), so a lower currency is desirable as a way to win more customers.

China can't increase RMB for now, reason being that all south east asian countries are there to pick up business if China gets too expensive. Once china moves to labour independent economy and it has a self sustaining service industry, then it can let RMB float freely. At this point a free floating RMB = Free floating bullet to the brain.

 

[amgyoubb]

having a high dollar does keep inflation and the cost / wage pressures at bay..imagine what you would be paying for petrol if the dollar was @.75 cents..and then imagine the ripple effect it would have on all costs. we run a balance of payments deficit Our banks lend way more than they raise locally and by having a high dollar our productivity is not all going up in smoke Ie Interest.

so their are very strong arguments and beneficial reasons for having a high dollar. ...for us ( Australians ). The exporters who need a lower dollar to be competitive lose out a little which forces the economy / exporters to adjust..... either increase efficiency, value add modify , or change .....hard to do but that is they way...to keeping a high standard of living...i would rather keep my standard of living than let the currency debase to a level that we can only compete with countries with workers living below the poverty line as their main source of productivity.

with regard to the ozzie being a good bet.. stable ..ish govt..reasonably interest rates..hard assets in the ground....there are worse bets out there.

 

[jpanggy]

having a high dollar does keep inflation and the cost / wage pressures at bay..imagine what you would be paying for petrol if the dollar was @.75 cents..and then imagine the ripple effect it would have on all costs. we run a balance of payments deficit Our banks lend way more than they raise locally and by having a high dollar our productivity is not all going up in smoke Ie Interest.

so their are very strong arguments and beneficial reasons for having a high dollar. ...for us ( Australians ). The exporters who need a lower dollar to be competitive lose out a little which forces the economy / exporters to adjust..... either increase efficiency, value add modify , or change .....hard to do but that is they way...to keeping a high standard of living...i would rather keep my standard of living than let the currency debase to a level that we can only compete with countries with workers living below the poverty line as their main source of productivity.

with regard to the ozzie being a good bet.. stable ..ish govt..reasonably interest rates..hard assets in the ground....there are worse bets out there.

That is how it has always worked. Strong currency is good for the public but bad for business. Weak currency is good for business but horrible for public.