CHART OF THE DAY: Aussie Dollar Blues

The fate of the Aussie dollar is suddenly big news once again with a Bloomberg article yesterday quoting forecasters predicting the AUDUSD will fall as low as 75 cents this year.

RBA Governor Glenn Stevens will be pleased if the Aussie can get down toward that zone, as it will spread the benefits of recovery more broadly across the economy.

But as the AFR notes in an article this morning, concerns linger around economy’s mining hangover.

It’s not news to Aussie dollar traders but with Facebook and Twitter IPOs over the past year and tech stocks the big winners while mining stocks lagged, I was reminded that it’s perhaps less about Australia specifically and more about the “sector” Australia represents.

Investors are just looking elsewhere

Today’s chart is one I have watched since 1999-2000 when Richard Franulovich, Westpac’s now New York FX strategist, and I decided we thought the Aussie dollar was headed under 50 cents over coming years.

As you can see, the Aussie dollar normally and over the long run has a fairly good relationship with the performance of mining shares relative to the sharemarket as a whole. The low in 2001 subsequent to this call was 47.75 cents.

If this relationship holds this year, there is every chance that even with the buying still strong from real money managers and central banks, the Aussie dollar will drift much lower in 2014.

Maybe even below 75 cents.

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