The Aussie dollar didn’t react to the worries of the stock market last week, indeed it gained strength both against the US dollar and across the board. It appears that global investors, wary of a US default, have once again begun to park their money in the Aussie dollar and Australian dollar assets as it takes on the role of “safe harbour” once again.
But the notion of safe harbour also assumes that the Aussie dollar will fall again once the US shutdown ends and once the debt ceiling is resolved.
However the price action in the Aussie over the past 24 hours looks like a run higher might be on the cards.
So who better to ask than well-known Aussie Dollar bull, Clifford Bennett from Investor Unity, for his thoughts.
Bennett told BI:
The fact that it has proven the majority wrong and continued to push higher is a testament to the fact that we a part of Asia, and Asia in general, particularly China, continues to be very well managed economically. In recent years we under-performed by any measure of the domestic economy, but strong export demand lead by China saved the day. Now with a fresh spring in the step of most Australian business managers and investors post federal election, combined with continued strong resource demand as always forecast here, there are rather solid foundations for my predicted move back to parity and beyond.
From a positioning point of view Bennett is dead right. If traders expect an asset to fall then they sell it short in the hope of buying it back cheaper at some point in the future. But there is a pain point that once the asset trades above they will close their position, by buying, which further propels the price higher.
That level in the Aussie dollar looks like it is 95.2c
A short time ago (11.13am AEDT) the Aussie was at 95.14c.
Longer term he remains very bullish which will, if it comes true, be a big shock to corporate Australia and the federal Government’s budgetary position.
Short term the AUD is a bargain if seen in the low 94 cent region, but is more likely already on its way to 97-98 cents. Above parity remains my call by year end. Next Year the risk is significantly higher. Overall the math remains quite simple, 23 million people sitting on the world’s wealthiest pile of rocks, and 2 billion people want those rocks. In terms of global financial market forecasting, it doesn’t get any more straight forward.
The Australian dollar float has always worked in favour of the RBA’s policy and toward economic stabilisation for the Australian economy. Something has changed since 2009 and that something increasingly looks like China and our AAA rating which remains rock solid.