Whether you trade the Australian Dollar or are live in the country you cannot help but have some exposure to our currency. Our farmers and exporters currently watch with keen interest and in a way watch with some sense of helplessness as they can be doing all the right things in their business only to be buffeted by the dollar over which they have no control. It is surprising the number that do not hedge their exposure.
As an exporter with BHP I can remember many years ago when an Australian dollar bought about $1.30 US dollars. Hard to believe - when you recall such eras it is a sure sign that you do have some years under your belt!

A strong currency is a sort of compliment - backhanded some people might say - for a well regarded economy and over the recent years the Australian economy has been without doubt a stellar performer and is likely to continue to be a winner for at least the coming 12 months.

So where to the dollar? I believe the dollar will climb higher but the main run up has already occurred. Breaking through US$0.68 was a major feat but you will note from the chart below that for the moment it seems like it wants to oscillate around the US68 cents mark before attempting new heights. Note also how there is divergence since May this year - the oscillator has not kept pace with the underlying dollar movement. The oscillator like any indicator is not infallible but it cannot be ignored. The oscillator could go higher but it is unlikely to do so quickly.


click chart for more detail

In Elliot wave terms the dollar is in wave 5, with the first wave 5 level being US0.72 but it may still take some months to get there and on its way it may also come off here and there. One of the interesting and reliable features of Elliot Wave theory is that Wave 5 is somewhat unpredictable and vacillates along the way.

Below is a "quarterly" chart as opposed to the daily one above.


click chart for more detail

It is important to look at the bigger picture as it can show us where the underlying has been and what are the critical levels of resistance and support. In this case we look back over 15 years and we can see that the dollar is coming out of an unprecedented low and that it has spent more time over US$0.68 than below. Whilst you cannot tell from the chart it actually came off a high of US$0.88 in December 1988 - so these current levels are by no means giddy heights!

As we may have seen most of the recovery in the dollar this will auger well for the dollar sensitive mining stocks over coming months. They may have had strong rises but these could well continue if the dollar does oscillate for a while.

Enjoy the ride.

Tom Scollon