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Australian Dollar special report

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Australian Dollar special report

Fri, Oct 3 2008, 08:28 GMT
by Clifford Bennett

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The US House will again vote later today on the Bailout Bill, now relegated to an amendment. It is entirely possible the “no” votes may again triumph, but in reality I suggest this may be one of the closest, and certainly most historic votes ever taken by the US Congress.

“YES” means a moderate reprieve for US financial institutions, and a moderate reduction in current libor and swap spreads. Australian dollar short term implications: Expect a strong rally in the Australian dollar on the basis that some will read this as an alleviation of risk, which will allow global investors to again seek out good yields instead of panic buying of US treasury paper.

“NO” means shear panic about the survivability of a great number of US banks and perhaps some European banks as well. Australian dollar short term implications: Expect a renewed wave of selling as market participants take the view this means greater risk levels again and a further slowing of the global economy which will not be taken as good news for this commodity currency.

The long term implications for the Australian dollar will be less severe.

China: Balance of Trade: Commodity Prices: Yield:

Conclusion: The Australian dollar is likely to be one of the world’s strongest currencies in 2009, on the back of continued strong China growth, high RBA rate levels, and perhaps a complete capitulation of the US dollar as it collapses under the weight of the money presses that the US Treasury /Fed will have running hot for many months to come.

Our 2009 year end forecast for the Australian dollar is US$1.01, and we may still see our 89 cent forecast for this 2008 year end as well.


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