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Australian Dollar special report

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Australian dollar to go the way of Oil!

Thu, May 29 2008, 07:48 GMT
by Clifford Bennett

FxMax

On vacation

Think Australian dollar; Think OIL ! The same albeit late realisation that oil is a finite resource in a booming global economy, will increasingly be applied to the not so little door-step-of-Asia commodity producer and by proxy the Australian dollar.

Clearly when you have called the Australian dollar to parity in the year 2008, and done so since mid 2006, it is a little concerning to see some of the major banks who publicly derided that forecast at the time, now coming to the party so late. It is of concern because it suggests most of the largest players who have got it wrong, have just taken their losses and finally gone long the Australian dollar. This is a warning sign that yet another one of those typical AUD sharp downward corrections of several cents may occur within the next two weeks. Let’s not forget however that the dominant risk remains very much to the upside at all times.

Exporters should continue to hedge the next few years of exposure on all and any dips in the Australian dollar.

We at Sonray have been forecasting, since last year, a further appreciation of the Australian dollar beyond 2008 and parity, to US$1.0800 and perhaps US$1.1200 in 2009. Our long term bullish outlook for the Australian dollar remains in place, and has long been based on the long term decline of the US dollar which still has a way to go, perhaps to Euro 1.85 and 2.05 in the next 1-3 years. That means an increasingly efficient door-step-of-Asia commodity producer, with a central bank reading from antiquated texts and delivering above necessary interest rate yield levels, will remain an irresistible investment for any global money manager.

It is crucial for Australian exporters, if they are to maintain market share in a booming global economy, to understand this is not some short term price aberration. This is the Australian dollar seeking out the top of the new 20 to 30 year trading band, which is likely to be in the order of 90 cents to US$1.1500.

The AUD technically may pull back to .9570 again, perhaps even .9510, but the more likely immediate scenario is .9605 support holding for a break to 97 and perhaps 98 cents in a matter of days. From those highs we could see that momentary sharp correction back again to 96 or 95 cents, but this is not something that should be banked upon. The dominant risk remains to the upside, and once the AUD breaches parity, it is unlikely to stop there. On the day .9605 .9645 and bid.

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Published on  Thu, Jul 24 2008, 07:54 GMT