Why the Australian Dollar is doing so well!

January 16, 2012


Thin slicing is both a reality and a biological necessity. Whether it’s Malcolm Gladwell in “Blink” or Daniel Kahneman’s System 1  in his latest brilliant book, “Thinking Fast and Slow”  the reality is that there is a part of our brain that, in Kahneman’s words

 operates automatically and quickly, with little or no effort and no sense of voluntary control

Certainly when it comes to investing and trading you’d expect much deeper analysis. In truth that is what investors try to do. But equally the reality is that in a busy world with a myriad of drivers and inputs, new news and old news rehashed people, both novices and professionals alike, tend to have a top of mind thought for each of the potential investments they are following.

As a quick test evaluate what your instantaneous thoughts are when I write:


and now when I write


if you are in the Hunter like I am you’ll have two very different views on each of these companies but they will come to you quickly, without too much effort. 

And so it is with Currencies and Foreign Exchange Markets. Indeed there are many ways to explain why the Australian Dollar is doing so well. I can break out my toolkit and look at the longer term drivers and you’ll see things have picked up. I could break out the technicals and talk about the outlook or I can take a different approach – which is what I plan to do in this post.

Imagine, if you will, that you are a very busy Central bank Reserves Manager or a Portfolio Manager for foreign bonds. You have been assailed by issues of Sovereign debt in Europe, debt ceilings in the US,  Chinese property bubbles and fears about the growth outlook and any other myriad of issues that assail managers of global investment pools – or any other trader for that matter.

What do you do when you make your investment decision? You assiduously study all of the relevant economic data and outlooks, look at budgetary positions and so on. You  read widely from all manner of analysts and pundits and then – because you have no other choice – you distill all your options down into 1 thought or sentence per country.

What might you say about the world?

We’ll, my best “something I prepared earlier”  voice, here is a snapshot of the headline for each country covered in HSBC’s Global Macro Economics publication “When the Wheels fall off” from December 21st which I read last Thursday night when trying to catch up on things

US Trouble ahead  Yes
Canada External Headwinds  Yes
Mexico Making the best of it  
Brazil Some recovery in 2012  
Argentina Reality Check  
Chile Bracing for external impact  
Eurozone Starting to bite  Yes
Germany Consumption the only buffer  
France Latest victim of the Eurozone crisis  
Italy Aggressive austerity  
Spain Stand by me ECB  
UK 2012: An Olympic challenge for UK Monetary policy  Yes
Norway Turning Inwards  Yes
Sweden Export-led slowdown looms  Yes
Switzerland Export-led recession in sight  Yes
Hungary Going up the slippery slope  
Poland Focus on Financial stability  
Romania Rising NPL’s highlight risks  
Russia Locked up between elections  
Turkey Imbalances to correct at a glacial pace  
Egypt Entering the green zone  
Israel Steady domestic demand to offset some export vulnerability  
Saudi Arabia What crisis  
UAE Feeling the squeeze  
South Africa Trapped in stagflation  
Japan Carried by stimulus  Yes
Australia Still in good shape  Yes
New Zealand Better than some  Yes
China Time to reflate  
India Cooling amid high inflation  
Hong Kong Sandwiched between the heavyweights  
Indonesia Domestic resilience  
Malaysia Feeling the global chill  
Philippines Looking for growth from within  
Singapore High beta blues  
South Korea Steady, steady  
Taiwan Sitting on the edge  
Thailand After the floods  
Vietnam The promise of reforms  

Have a look at each country and then have a look at the headline – I know this is not scientific but in a time constrained world full of thin slicers who do or need to break everything down into small chunks I think this is probably instructive of most traders, investors and portfolio managers thoughts at the moment.

Now if we think back to early October when the worst of the global pessimism and stock markets rout’s were about we can see the currency returns of the top 16 currencies of the world in the graphic below.

The Australian dollar is the clear winner.

I always say that currencies are least ugly contests and as you can see above in a world of challenges, fear and worries the Aussie, to quote HSBC, “is still in good shape”


Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor Lighthouse Securities has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

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  1. Australian Dollar “fails” at resistance | Lighthouse Securities - January 18, 2012

    […] pointed out why the Aussie is doing so well at the moment earlier this week and that isn’t changing in a hurry. But technical resistance is strong in this zone as, […]

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