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Australian Dollar special report

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AUD Bullish

Thu, Oct 16 2008, 09:48 GMT
by Clifford Bennett

FxMax


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Fundamentally everything has changed. Yet everything that has changed will in the medium to long term work in the Australian dollar’s favour.

The China/commodity story has taken a battering, yet China will continue to be the fastest growing economy among the major powers for several years to come. ... export income may well increase.

The Reserve Bank continues to correct its massive error. For the last twelve months we have aggressively tried to point out that the sub-prime storm would intensify, ... The appropriate rate setting for Australia for the rest of 2008 and all of 2009 is 4.00%. ... Australia will still maintain an extremely attractive yield advantage, especially against the US dollar.

The Australian domestic economy will flirt with or experience a domestic demand recession, but it is possible continued strong exports, a surprise to the current consensus if correct, will maintain overall GDP at flat to slightly positive. ... recession avoidance.

The US dollar has strengthened relentlessly for a couple of months now, and by any historical precedent is extremely over bought, but it just depends how much more panic buying of US cash and paper is still yet to come. ...

In summary the global worst case scenario for the Australian dollar is now fully priced, and the view here is that the market consensus may be in error.


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