Currencies In Perspective – Risk And AUD

The value of the U.S dollar (USD) is currently at the exact same exchange rate with the Japanese Yen (JPY) as it was back in April.

So, in case you hadn’t been back n fourth to Japan several times over the past 5 months – you wouldn’t have a clue as to the fluctuation in these two currencies value ( in relation to one another ) in that,  absolutely nothing has changed.

Broad stroke….a person holding USD “hit’s the currency exchange window” at the airport, lands in Tokyo and buys a chocolate bar for the exact same price as last time – 5 months earlier.

Now if your business partner was Australian, he wouldn’t have had it quite so easy. Back in April the “Aussie” could be exchanged for 1.05 Yen ( JPY)  and those chocolate bars at the airport appeared “cheap”  – where as today ( only a short 5 months later ) that Australian dollar only yields .89 Yen (JPY). That is a pretty massive change in such a short time don’t you think??

Let’s stop and think about this for a moment.

Japan has embarked on the largest “Quantitative Easing Program” known to mankind in efforts to “devalue” Yen (JPY) and lower the prices of its export goods ( if Yen goes down in value then “you” with your Canadian or U.S dollars would be “incentivized” to buy Japanese goods as they appear more affordable) yet EVEN AT THAT – THE AUSTRALIAN DOLLAR HAS LOST CONSIDERABLY MORE VALUE!?!

That is some serious , SERIOUS , business in the land of currencies where at “one time” the Aussie dollar was considered the “go to currency in times of risk appetite”.

Some “major players” have been sneaking out the back door here over the past 6 months selling AUD aggressively, and this stuff just doesn’t exist in a vacuum.

…………..more over the weekend.


13 Responses

  1. TheTrueHeir August 24, 2013 / 5:07 pm

    Do you have any specific trading recommendations for the upcoming week? I presume you’re still a massive USD bear?

    • Forex Kong August 25, 2013 / 9:06 am

      Im sticking short USD ( although careful “against what” ) as well looking to see if JPY pairs have topped out.

  2. PT August 24, 2013 / 6:31 pm

    Senor Kong,

    LikesMoney gives a bleak outlook for the USD, suggesting “The dollar first lost the 200 MA as it formed its yearly cycle low in June. It quickly regained the 200 MA as it rallied out of the yearly low and peaking in early July. Following the July peak the dollar printed the ugly bearish reversal and has been declining since. It tested the 200 MA in late July (day 14) and then broke below it in early August. The dollar tried to regain the 200 only to see it get reversed. This week the dollar tried once again to regain the 200 MA only only to be rejected by it. While the daily count may not be clear, the trend certainly is and it is down. The dollar quite likely has begun its decline in into its three year cycle low. And since it lost the 200 MA it may not see it again until the dollar rallies out of the forth coming three year low.”

    I’d be interested to hear your commentary to the final sentence of the aforementioned quote.

    Gracias, PT

    • Forex Kong August 25, 2013 / 9:14 am

      Pretty much right “on the money”!

      I don’t really expect much out of USD until we see another solid leg down. It appears to have rolled over here already so….next week “hopefully” will provide some solid trend/big profits.

  3. Power Corrupts August 25, 2013 / 8:06 am

    Kong! Oz’s role perceived role as commodity supplier to China and the ballyhoo’d slowdown in China’s rate of economic expansion lead to global capital flows away from Oz capital markets putting downward pressure on the AUD, right? Is it oversimplifying to just watch China for cues to AUD’s direction?

    • Forex Kong August 25, 2013 / 9:11 am

      You bet…..I over simplify all kinds of stuff around here!

      AUD also has it’s own “internal contributing factors” as all currencies/countries do – you’ve got it.

      AUD continued rate cuts have hurt carry traders with the slash from 4.25% down to now 2.5%.

  4. Tio August 25, 2013 / 7:30 pm

    … may i ask about correlation within intermarket ‘things’ and business cycle model.
    – What is the best way to integrated this 2 idea in order to make better gauge for currency direction especially USD index. Any ‘book’ you can recommend ?
    – is it correct that in order to know USDx direction, the best way is put our analysis in the Fed shoes first, what Fed is look at at any moment ? yield curve .. 10-2 yr yield spread … unemployment rate … housing number or automotive sales
    – he .. he .. when intermarket techy service will be release ?

    sorry for loaded questions… thanks.

    • Forex Kong August 26, 2013 / 10:19 am

      Hi Tio.

      I wish I could recommend a book but unfortunately – I really can’t say, as I’ve never read one ( on forex / trading at least ).

      As far as my own analysis goes I take a “top down” type approach and look to get my head wrapped around “the largest/most significant things that are happening” then continue to work down.

      As it stands I currently have this as being the “battle / struggle” between East and West and the dynamics created therein.

      The Fed looks at creating revenue for itself first so…..printing and lending money to the U.S government sits at the top of the list there. So…..if you where the Fed – what would you want to keep doing? You bet – print and lend…print and lend…..print and lend. I see this “dynamic” as being fairly “high up there” in helping me form further analysis. Fed prints….then other countries have to print. Japan is then “encouraged” to print, as are others….and “fiat” currencies all head lower “together” to essentially compensate for the blunders of the U.S.

      Certain currencies act as safe havens – certain currencies are stronger / weaker in times of risk aversion / appetite. This comes into play next for me. Then within the “specific” countries we have data that affects the given currency such as housing / exports / unemployment etc…..

      A good example of this “hierarchy” would be if someone was to say “Spains unemployment is currently 24%! – Let’s short EURO!” when these numbers would have little to do with EURO movement in the face of 85 billion U.S dollars flooding markets monthly.

      I can go on and on…..but I hope this help “a bit”.

  5. devilyell August 26, 2013 / 9:42 am

    Has anyone had a Kong sighting?
    Maybe it is time for a BOLO? (be on the lookout. an American law enforcement acronym.)

    • Forex Kong August 26, 2013 / 10:05 am

      Im alive and well!

      Getting back at it here this morning short of a real spotty internet connection. These “doji” days are a real pain as I’m about done with this summmer’s dull trading environment.

      I’m back to work here full time so…….hopefully I can stay tuned.

    • Forex Kong August 26, 2013 / 4:37 pm

      A touch late to “infer” something smells funky with AUD as such considerable damage has already been done.

      We need to understand that “even” when a given currency is heading lower -“other currencies” can be “heading lower” even faster/greater.

      Take an example – if we see USD drop to it’s knees here….AUD would be percieved as “rising” vs USD…regardless of it’s own plight. This is an area of Forex where many MANY traders have trouble. We always need to consider ” against what” when we see a currency depreciating, as others may be “depreciating” even more.

      • Forex Kong August 26, 2013 / 4:42 pm

        For those really looking to get this worked out consider this.

        I am currently “long AUD vs USD” expecting USD to “lose value” against AUD. ( This doesn’t mean I am a “fan” of AUD – it means I see USD falling EVEN MORE than AUD in relative terms).

        And at the same time……..(drum roll please)….bam! – I am looking “short AUD vs JPY” as I expect JPY to GAIN IN VALUE as risk comes off.

        Two separate pairs…..two completely separate reasons for trades entered.

        Head spinning yet?

Leave a Reply