The market fall may be mostly over but there is still more pain ahead – for the US dollar, anyway. On the flipside, currencies like the lil’ Aussie battler are set to rise further. This is good and bad news for consumers in the US and Australia. It’s good for Australian importers, since cheaper imported goods means lower prices and lower inflation pressure. But it will become even tougher on exporters, and whilst our miners can tough it out our farmers are already doing it tough.
In contrast to the weakening US dollar – no one wants to hold it – the Australian dollar is in demand. There is demand for Aussie dollars to pay miners, but also demand because of interest rate differentials.
If you look at US Treasury bonds you will see that several .25% cuts are priced in. If you look at Australian 10-year bonds there is no sign of cuts and a fair chance of another rise. Consequently we will see a widening gap between interest rates along with the temptation to borrow cheap money in the US and invest in OZ. It’s a good time to contemplate the prospects for Australian investment markets in the year ahead.
But back to the dollar. Take a look at the 30-week Elliott chart:
click chart for more detail
The chart indicates we may see a relief rally for the US dollar – which we are seeing to some extent now – but the main point to note is the prospect of parity a year or so out. Without referring to the charts I can safely say it has been some decades since we saw parity.
What we do know about financial markets is that they are never straight up or down. The journey to parity will be somewhat of a bumpy one – and one where money can be made.
Enjoy the ride!