Friday, September 4, 2015

AUD at 70c Overvalued?

With all the fuss in Chinese equities being sold off and the large volatility in Oil, the AUD has been getting relatively minimal news coverage (until today) and has quietly tracked lower hitting the 69c handle.

Interactive brokers a couple of months back stopped trading in forex positions and I took all my US holdings to be unhedged by closing all my US borrowings (effectively going long USD against AUD) at 79c.  My newly opened US equity positions are however on US borrowings and my decision is whether to close out my USD borrowings again.  It was a fairly easy call at 79c, but at 69c how much lower can AUD go?
The lowest AUD price was in 2001, around 47c.

Some thinking points
1/ US rates are likely to go higher and Aus rates are likely to fall.
2/ GDP was lower than expected at 0.2, also trending lower
3/ China and lower demand for commodities
4/ Continued momentum by traders pushing the prices lower, and currencies tend to overshoot in both directions.

I think a key issue with consumer confidence and economic output may be reliant on the property market in Australia, and if the lowering AUD and lowering interest rates don't keep the property market boom going, we will likely see 50c within 12 months.