I’m not going to get into all the details here at the moment as……I imagine the majority of you could really care less.
“Just give us the trades Kong – what’s the trade Kong??”
The Australian Dollar is in real trouble here.
Considering that the RBA is opening “talking down” AUD as the currency is considered “overvalued” (and in turn hurting Australia’s economy), coupled with the fact that “it’s been a nice run” on the back of massive expansion and development of China – it could very well be time for some serious downward action.
AUD has already come down considerably but…..I might see a “waterfall” coming – in the not so distant future.
Trades short in AUD/JPY would likely make the biggest move, as well for stock traders short “FXA”.
Absolutely Kong, but perhaps not before a pause at 61.8fib at 0.9196. 8 consecutive red 4 hr candles means its oversold for now, but I see 0.9000 in trouble before year end. Also the AUDNZD has potentially more to fall as well. Imho if this pair breaks and closes below the year low at 1.1180 next stop is 1.1000 and then 1.0830.For me this pair has been the trade of the year.
AUD / NZD completely slipped past me man as….I generally don’t trade 2 commods against one another and didn’t really look at it until I started learning more of NZ economy diverging.
Ya wow….if you’ve been on it / in it – boom! nice trade!
Not in AUD / NZD currently, now waiting for the break of the yearly low before shorting again, but its been good for over 1000 pips so far. Agree completely about not trading like pairs, but this one is my local cross, whereas I wouldn’t trade EURCHF – I try to avoid pairs in the same hemisphere, with this as the exception.
I’m lookin at er now…and as the fundies line up as well….
Thanks for the tip!
My pleasure, you’ve given me plenty!
Hi Kong, hope you’re well. What I don’t understand is how the AUD crosses are getting smashed but other risk related assets are not (ie. Equities). Either the correlation has changed or somethings gotta give! Eg. EURAUD and SPX.
Jack!
Yes indeed the correlation has ( how shall we say ) “morphed” in that………the endless supply of Central Bank funny money from both the U.S as well Japan continues to find it’s way into equities DESPITE the call for global slowing / lowered global GDP etc.
The smart money is clearly exiting ( as we see through risk currencies ) yet the “retail” money continues to buy the dream.
As well….and the dirtiest part of the plan – the Fed has killed your savings rate ( seniors now more or less net negative ) then squashed your currency, as contributed to the manipulation of gold and silver prices ( falling along side the USD ) as means to “force people seeking yield” into the only game left in town! The stock market! The most manipulated and contrived stock market of the century.
Bonds first….then the currency – then equities are the last to go.
It’s past comical now…billions of fake Fed money this week and SP barely breaks even.
It’s my belief that once things start to come unravelled – the Fed will panic and look to print / QE in a much larger fashion ( which won’t work either ), putting tremendous downward pressure on the U.S Dollar, leading to a much larger crisis than we’ve seen in the past.
As it stands – we’re in the final stages of sucking in every last penny possible before the business cycle rolls over, and we enter a time of “contraction”.
Interest rates to rise…putting further pressure on business looking to borrow, putting further downward pressure on earnings – lower stocks and a serious problem with the U.S Dollar.
Fun stuff eh?
Thank you, a wonderfully written summary of the status quo. I am mostly in cash, which may prove to be too early and/or hold serious opportunity cost. However, it is crazy times and the house of cards may fall at any moment. Looking forward to opportunities this may provide! Do you think more QE will come after tapering or full scale removal?
You are in an excellent position being in cash.
Think about the freedom!!
Most hang on too long…then hold through months of painful downside action, only to find themselves “selling” at the bottom as the pressure becomes to much to bear.
It takes balls to sell. Bravo!
It’s possible that the Fed will “suggest / try” a small tapering in order to save face. This in itself will be completely orchestrated as to further justify ” more QE ” in that……..it will completely tank markets – and I bet a pile of people will then perceive ” fed intervention” as “saving the day”!
They can look like hero’s as they reduce the middle class to bank slaves.
I am now convinced that you are from the future. Fantastic AUD/JPY call here!
I am indeed from the future.
Thanks for the shout out.
Short term, anything (aside from collapse) is possible. Medium to long term, you are wrong. The australian dollar’s proper level is around parity with the USD and around 200 yen to the dollar. Only the most brain-dead of idiots would short the AUD against the JPY before the cost of carry turns in favor of the JPY (which will happen). Beware of leverage in the second half of 2015. In the meantime, go long and buy the motherfucking dip.
Parity? – He he he……not in this lifetime Andre, but I do appreciate your conviction.
As well…..not sure if I’m reading this correctly but – did you just call me a brain dead idiot?
I encourage you to check in when AUD sits somewhere around 89 vs USD , and has taken a “waterfall ride” vs JPY.
The AUD/USD may very well hit 0.89 again but that is just noise and a great buying opportunity. It will not stay there for long. Australia has real problems with competitiveness as their welfare state has pushed living costs absurdly high, however, America is rapidly bridging that gap (see Obamacare) and Australia has certain advantages as well (see Social Security). Devaluing the AUD will not improve Australia’s competitiveness and the RBA is just playing politics to appease certain groups, they know a strong AUD is actually what is keeping the country together. The AUD is not perfect it is simply on firmer ground than the USD or the JPY; part of that is because politically Australia is saner. A case could be made for a possible recovery in the value of the USD; the same case cannot be made for the JPY. The Bank of Japan has no option other than devaluing USD/JPY to at least 200 in order to make the debt nominally sustainable and allow politicians to save face; japanese culture will not tolerate an outright default. Do not make the assumption that you’ll be able to get out of a long JPY position in time.
Great stuff Andre – it sounds like you’ve got a pretty good handle on things. I’m sure you’re comments / contributions will be of interest to many readers here.
A “tiny” thing I might contribute to your thinking / theories……
There is no question the AUD is a currency with very solid fundamentals and strength. AUD has literally ” everything going for it as far as I am concerned….though – unfortunately it’s “role” globally still has it solidly in the “risk currency” category where as both JPY and USD sit in the “safe haven” column.
There is no comparison of the two as……..fear will always be fear….and greed will always be greed. When risk comes off ( which obviously it will…as markets cycle etc..) AUD will drop like a rock, and all the “free money” printed by Japan for example will come roaring back as it’s repatriated. This is just common sense.
We can see by way of the “high” in AUD/JPY back in April ( as I feel global markets essentially topped in May ) and it’s steady decline ever since….well over 1000 pips.
That’s largely due to the fact that his rally is being sold ( hard ).This “prior” to any obvious drop / change in sentiment / risk coming off.
I’ll leave it to you to envision where the pair will be when global risk appetite “seriously wanes”.
I understand that, but before talking about how AUD/JPY has fallen by over 1,000 pips from the top, look at the chart and see how it did so after climbing 4,000 pips from the bottom and 2,000 pips from where it was very recently. Look at a long term chart, say 20 years, taking into consideration that the cost of carry is in favor of the AUD and was actually much wider in previous years. Are you really sure you are willing to bet against the AUD in favor of the JPY? People already realize Japan is in collapse and are actually trying to leave to actual safe havens. Japan is not a safe haven, it is a creditor. That means the JPY is kept afloat by the carry trade. If capital is sold and used to buy back yens, the japanese lose their actual assets (foreign investments) and get in exchange a short period during which that sale is able to fund imports. If the japanese lose their assets, the current account for Japan goes negative. If the current account goes negative, the interest rate goes up, which cannot happen because they cannot actually pay higher interest rates. This means they cannot pay for imports. This means they cannot buy LNG with which to power the robots working in their factories. The Bank of Japan is aggressively attempting to do the exact opposite. You may be able to time a short but I think the odds of such a trade going wrong are simply disproportionate to the possible reward. Unless you have a crystal ball, in which case everything I’m saying is meaningless.
Again….great insight Andre.
I don’t “invest” / hold a given currency for any length of time so….yes I will bet against the yen…as I have previously bet “on” the yen….then back and fourth, then back and fourth again. I believe it’s called “trading”.
My long term fundamental analysis / knowledge offers insight into the long term trends / future moves in currencies sure…but I “trade” far shorter term.
My long term view that essentially “all fiat currencies” are heading for the basement doesn’t do me much good when I’m planning my next travel adventure does it?
I trade what I see, and what do you know! – AUD move “lower” just paid for Bolivia.
Keep up the good work man.
Watching this debate has been fun, however it doesn’t matter what Andre’s view on the AUD fair value is, its not going to see parity again for a while (a very long while). At present there is just too much cross selling against it – EURAUD, GBPAUD and AUDNZD – the volume on the Yen cross is not enough to cause the AUD to bounce given the volumes on these other pairs. And the fundamentals are pointing in the wrong direction. Even a USD collapse won’t produce a move to parity. And the COT has shown no change in net spec positions (36k short) inspite of a 190 pip fall last week.
With respect Andre also makes some odd assertions about a lower AUD and competitiveness and a saner political system – he’s obviously not from around here!
Only the tech’s are suggesting any bounce for the AUD as its oversold, but allowing that to unwind still means its headed for sub 0.9000 by year end and low 0.800’s next year. Any “buying opportunity” is for day traders and mean reverters only, for trend traders its a one way ticket.
And the floor is yours Deano!
I couldn’t have come close to as concise (and ever so polite) an explanation.
Bravo!