Would we want to own the Australian dollar right now? No. But we have to admit that this fulcrum currency is now pushing upwards, after dropping with the markets.
Just the last few hours:
The 2-day rebound on a longer-term chart.
The Aussie dollar has had an interesting long-term relationship with leading economic indicators, as shown by Morgan Stanley below. It might have something to do with the fact that this Anglo-Saxon economy is both levered to liquidity and China.
As a side issue, it’s interesting to observe that the trade- weighted Australian dollar has a fairly close relationship with the OECD leading indicator, and it seems to lead it on many occasions as Exhibit 14 shows. If the recent downturn is early evidence that activity is about to slow, then this will have important implications for exchange rates.
Nothing is certain, again we wouldn’t want to own the Aussie dollar right now, but keep an eye on the fate of Australia.
(Morgan Stanley, Stephen Hull, 27 May 2010)