Australia Caught Sandbagging Their Currency

Nice scoop on the Australian dollar from our favorite currency analyst, Everbank's Chuck Butler:

And under the heading of "dirty float"... The Reserve Bank of Australia (RBA) is reported to have sold the most A$'s in the month of May, since February 2004! Now, go back to May and recall the move in A$'s... The currency gained almost 10% in the month... So, the A$ would have gained even more if the RBA had not sold A$1.4 Billion A$'s in the month! I personally think the RBA was just trying to smooth out the trading the A$, which given this information would have been moving up the charts with a bullet in May!

I don't think the RBA would get involved if the move was a slow, general appreciation of the currency... So, I don't look for future intervention to keep the A$ from gaining the ground I believe it will gain rest of this year, as inflation fears grow stronger and stronger...

Chuck said it - these types of inverventions never last - at the end of the day, fundamentals always win out.

Based on this info, I went long the Aussie dollar once again yesterday morning (I had closed my position on Monday, on fear the US dollar was due to rally).

Those sandbaggin' sons of bitches won't get away with this!

Also let me make a quick plug for Chuck's company - they offer bank accounts and CD's denominated in foreign currencies. So if you're really hot to trot on the Aussie, you could open up a CD denominated in A$, and earn interest to boot, while the A$ appreciates - potentially a sweet dea. Here's the link to learn more.

Related reading: Australia Avoids a Recession...For Now

Australia's Avoids Recession...For Now

Technically speaking...Australia is not yet in a recession.

Australia's GDP rose 0.4% in the 1st quarter of 2009 - a strong, strong performance turned in from the Land Down Under...especially as the other major economies in the world continue to circle the bowl.

As long as China's recovery continues - and that could be a big IF once China slows down on the stimulus spending - the Australian economy should benefit. But China's still got a couple bucks in the bank - give or take a few trillion - so right now it's "game on" for the tag team of China and Australia.

And as we discussed earlier today, these factors will continue to underpin this rally in the Australian dollar as well.

How Much Longer Can the Australian Dollar Rally?

The trend is our friend...and right now, the trend in the Australian dollar is up, up, and up.

Source: Barchart.com

A couple of weeks ago, we took note of the rally in the Aussie - and decided to initiate a position.  Boy am I glad we did...since that time, the A$ has rallied nearly 4-cents, and is currently sitting above the $0.77 mark!

Can the rally continue, or has the A$ come too far, too fast?  If you're trying to decide what to do with your position - or deciding whether you should initiate one here - I'd highly recommend checking out this informative video on where the Aussie could be heading, courtesy of INO.com's Adam Hewison.

As you may recall, I expressed concern over the weekend that the Aussie had not yet decoupled from stocks.  Well our favorite currency analyst, Everbank's Chuck Butler, believes the Aussie may be close to cutting this link:

So, as I just said, Tuesday saw the currencies trade right back to the levels they enjoyed VS the dollar last Thursday, before risk assets began to sell off on Friday. These are the types of trading patterns you normally see when the assets involved are getting ready for a break out... A jail break... Tonight there's going to be a jail break!

OK, I'm not saying that the jail break takes place tonight, I just broke out in a song from the 70's... That's all... Seriously though, I hope we're seeing a return to fundamentals.

What's the easiest way to trade the A$?  Check out the ETF FXA...that's probably your best bet.

Or, if you're looking for a way to diversify your personal savings, you can check out a foreign currency account from Everbank.

Further reading on the A$:

• Can Commodities Decouple From Stocks?
• Australian Dollar Still Kicking Ass
• A$ Hits 6-Month High...Can It's Rally Continue?

Australian Dollar Still Kicking Ass

Monday night, we were fortunate enough to initiate a long position in the Australian dollar.  I took a long, hard look at it before entering the position - on one hand, it had already been rallying strong and was afraid may be due for a pullback.  But the fundamentals and technicals looked too good, so I closed my eyes and hit the Buy button.

And now am glad I did, as the Aussie earlier rallied above the 75-cent mark!  Here's the good word on the latest pop from my favorite currency analyst, Everbank's Chuck Butler:

But the Big Winner of yesterday and last night is the Aussie dollar (A$)... It's on a moon shot, since the Reserve Bank of Australia (RBA) left rates unchanged the night before, and issued a balanced statement afterward, with emphasis on waiting to see the affects of the previous rate cuts. The A$ got an additional boost this morning when it was reported that the unemployment rate in Australia fell for the first time in 8 months! The A$ is 75-cents and change this morning, heading to 76-cents... A 7-month high! 

Australian Dollar Hits 6-Month High...Can It's Rally Continue?

The Australian dollar topped the 74-cents mark today to hit a new 6-month high against the US dollar.

The Aussie has been rallying strong of late, and this recent strength is now also underpinned by yesterday's decision by the RBA (Reserve Bank of Australia) to hold interest rates at 3% for at least the near term.  The positive rate differential for the Aussie compared with the US Dollar and Japanese Yen should be a bullish fundamental factor going forward.

Also in Australia's favor is the renewed strength in the Chinese economy, and commodity prices at large.  A continuation of these trends should help the Aussie's rally continue, since the Austrailian economy is largely commodity driven.

We can also credit some of the recent strength to the rally in world equity markets.  With markets rallying, risk aversion appears to be creeping back into play, as investors and traders are once again loading up on high yielding currencies.

Finally it's important to note that Australia is one of the lone major economies not to yet engage in quantitative easing - also known as "money printing."  The US, UK, Japan, and Switzerland have all turned to QE.  As strange as this may sound, a steady supply of money is usually bullish for a currency, especially when priced against others that are being printed at full speed and dropped from helicopters.

Potential roadblocks for the Australian dollar?  A downturn in the markets - which is a real risk, given this is likely a bear market rally - could once again dampen investors' risk appetite and prompt them to sell the "higher risk" currencies and flea back to that beacon of safety and fiscal responsibility, the US dollar. 

All in all, I weighed the risk/reward factors last night, and decided to go long 1 Australian dollar contract.  I am long-term bullish on the currency, and the recent breakout was enough of a technical indicator for me to take the leap.

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How can you too invest in the Australian dollar...without trading futures?

• Buy the ETF FXA, which tracks it's price
• Open up a CD with EverBank denominated in Australian dollars

For further reading... here's our most popular article of the day: How Bad Will The Financial Crisis Get?

Singapore Quits on its Currency, Too

Is ANYONE going to defend their currency?  Chuck Butler writes in the Daily Pfennig that Singapore is now the latest to throw in the towel on theirs:

A couple of weeks ago, when Chris was writing the Pfennig for me, he wrote about Singapore, and how the Monetary Authority of Singapore (MAS) had indicated it might push the Sing dollar lower. In fact, here's what he had to say in the Pfennig, March 30th, "Another currency you may want to consider exiting is the Singapore dollar. According to a story I read on Bloomberg this morning, the Monetary Authority of Singapore may devalue their currency and allow it to drop 4 percent against the US dollar in the next few months."

Well... Last night, the MAS announced a downward re-centering of the Sing dollar trading band while maintaining the width of the trading band and the policy of zero appreciation. OK... There it is... Forget all the trade widening and so on, and center on the "policy of zero appreciation"... That does not bode well for the Sing dollar... And for Chris' statement on March 30th? Bang On! Timely!

The thing I can't get out of head, is the fact that Singapore needs to keep its currency in line (value VS the dollar and euro) with the other currencies in Asia in order to keep its exports competitive... I guess, the MAS is thinking there aren't going to be any exports! And the ones that are there, they (Singapore) will have a "cheaper currency" and an advantage!

At least the MAS didn't devalue the currency, as these types of small countries tend to do to tilt the playing field toward them! And believe or don't... The Sing dollar rallied on the news that the MAS didn't devalue the currency... So... This is like manna from heaven for anyone trying to switch out of Sing dollars and into something else... The currency rallied overnight!

Just another reason to buy gold - it can't be "quantitatively eased" by any government.

Yen Falls as Japan Posts First Trade Deficit in 13 Years

Today, Bloomberg reported that the Japanese Yen dropped today against the dollar, euro, and Swiss franc as Japan posted its first trade deficit in 13 years.

“The poor Japanese trade-deficit data are giving further fuel to the idea that Japan, or the yen, is no longer the safe haven as the country’s external position deteriorates,” said Adam Cole, London-based head of global currency strategy at the Royal Bank of Canada.

We continue to follow developments in the Yen as we continue to monitor our short position.

Chuck Butler, my favorite currency analyst, also weighed in this morning on the comments from "Mr. Yen":

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as "Mr. Yen", Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar... WOW! He also said that it would range trade between 100 and 70... He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm... I just don't know about all that... For one, I'm not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan... And two... The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So... There you have it... I don't like yen's chances to go to 70, but do agree that it could hold 100... It's darn close to 99 as I type...

Jim Rogers on Upcoming Opportunities in Currency Markets

Jim Rogers, doing some "stand up" commentary on upcoming opportunities in the foreign currency markets:

• Expects the Japanese Yen to rise another 10-15%
• The current dollar rally is a forced short covering - not a flight to safety
• We are going to have "many, many, many" more currency problems this year
• Owns the Euro, Swiss Franc, Norweigan Krona, Danish Krona, Swedish Krona, Japanese Yen, Chinese Renminbi, Singapore Dollar, Australian Dollar

"Do prepare yourselves, because there are going to be spectacular opportunities in the currency markets as these currency prices unravel in the next year or two."

Upcoming Rally for the Norwegian Krone?

Everbank's Chuck Butler highlights the reasons he foresees a possible rally in the Norwegian Krone on the horizon in today's Daily Pfennig:

I had a great lunch yesterday with the Big Boss, Frank Trotter, and we were discussing what we would talk about next week at the Orlando Money Show. I told Frank that I really believe in the prospects of a nice big rally in Norwegian krone... Let me tell you why... First and foremost, it remains a Surplus country... A positive balance of payments... And that surplus has allowed Norway to weather the storm that's hit just about every other country in the world... See, why I believe the Surplus countries should always be considered when buying currencies? Anyway... The main reason it lost ground from last July's levels is the drop in Oil prices... They like the other types of Commodity driven currencies like Aussie, Canada, Brazil, New Zealand, South Africa, just got hammered due to the selling in Commodities... But... You know my outlook for the inflation in this country, and that will be driving Commodity prices higher by year-end... But the leader in the forefront of all this move will, in my opinion, be Oil prices... And IF Oil prices rebound like I suspect they will, that will be a very nice underpin for Norwegian krone...

Chuck's currency insights are often quite prescient, and he doesn't always come out flatly and say what he likes to rally soon in the Pfennig, so this is worth noting.

If you're looking for a place to make this trade - your not alone - my futures broker doesn't offer this contract either. One good option to consider is a foreign currency account with Everbank.

Dollar Index Falls Below Key Technical Indicator

According to Everbank's Chris Gaffney, the dollar index has fallen below its 55-day moving average, a key technical indicator.

But even before the automakers got the bad news from the Senate, the dollar was falling faster than we've seen in the past few weeks. Chuck shouted out across the trade desk around noon yesterday that the dollar index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc, had fallen below the 55 day moving average. This is a major level for technical traders, and signaled the dollar could be headed for a further fall.

Five Easy Ways You Can Diversify Away From The Dollar

Note: This article was also picked up by Seeking Alpha.

I personally fear for what may happen to the dollar over the next several years - I don't see any way these government bailouts will not result in an excessive printing of US dollars.

Faced with this reality, I know that many people who share this concern are also unsure how exactly to diversify away from the dollar. The past 25 years of investing history have been all about stocks and bonds, all denominated in US dollars, for most US residents.

Fortunately today, we have some great investment options available to us that were not around even a few years ago. Here are five easy ways you can diversify out of the dollar:

• Open a savings or CD account with EverBank, denominated in one or more foreign currencies. I personally recommend the Japanese Yen, Swiss Franc, Chinese Renminbi, Singapore Dollar, and Australian Dollar as some of the more solid currencies.

• Buy an ETF - you can do this from the comfort of your brokerage account. A few that look attractive right now: GLD, SLV, UNG

• Buy natural resource stocks. I think gold and silver mining companies, along with natural gas producers, look particularly attractive at current prices.
  

• Buy infrastructure companies. The world's infrastructure is a mess right now - there is a lot of upgrading to do. One example of a company focused in this space, which I own, is Brookfield Infrastructure Partners (BIP).
  

• Short long-dated US Treasuries. It's very unlikely that the rest of the world will continue to lend us money at 3%+ while our government spends it like drunken sailors. Interest rates are going to go up in a big way. There are several ETFs that inversely track interest rates - DXKSX is the one I own, because it provides 2.5x leverage.
  

And a bonus pick - it's not as easy as the suggestions above, but it's not nearly as hard as most people picture. I would highly recommend:

• Start buying actual commodities via a Futures account. It's not as risky as you think, especially if you limit your use of leverage - it's the excessive use of leverage that does people in. I have this account through Farr Financial. Recently, I've opened up a couple other accounts - one with Interactive Brokers, and the other with RMB Group.
  

Recent Dollar Strength

The dollar rally continues into the weekend, with two main drivers to thank:

1. The belief that the Fed will raise rates later this year to combat inflation.
2. The belief that the US economy will turn up soon, and the world will again look to the US as a place to invest.

I don't think either of these reasons hold much water. Instead, I'll go with the fact that everyone was short the dollar, so it was due for a rally.

Regarding the belief that the Fed will soon raise rates, I think Chuck Butler said it best in his newsletter this morning:

Listen to me now, and hear me later... THE FED ISN'T GOING TO RAISE RATES! The ECB IS, but the Fed ISN'T! At least not for sometime, THE ISN'T GOING TO RAISE RATES! Did you hear me? Oh, just in case you were busy listening to someone on CNBC tell you that everything is beautiful, I said... THE FED ISN'T GOING TO RAISE RATES!

As for when the economy will turn around - that's a bit tougher. I'm a fan of John Mauldin's point of view that we will experience "Muddle Through" growth over the next several years.

Everyone knows the negatives - skyrocketing oil and commodities, indebted consumers, gov't debt, etc. On the positive side though, when this alternative energy does begin to come online, I believe it will most likely be driven by American entrepreneurs.

It's dangerous to short America - though I think that's still the right trade, at least when this dollar rally is over. But it is likely that different parts of the American economy will experience vastly different fortunes over the next 5-10 years. And don't forget the Midwest - the US is a huge grain exporter, and eventually grain prices will get high enough for our farmers to make a lot of $$$.

Buffett Expects Weak Dollar to Continue

Over the weekend, Warren Buffet commented if he "landed from Mars today with a billion of Mars dollars, or whatever they call them on Mars, and I was thinking about where to put my money,'' he wouldn't put it all in the U.S. currency.

Full article on Bloomberg

Times Online: Dollar tumble spells trouble for yen trade

Full article

Summary:

• We all know the yen carry trade - folks borrow "cheap" yen (paying unnaturally low interest rates), invest in higher yielding terrain (ie. Australian dollar) and leverage the shit out of it.
• This doesn't work when the yen rises - as it is now. I had assumed that most of the carry trade was "unwound" - but this article suggests the real fireworks could be ahead of us.
  

Buying Opp - Aussie $$$

We have an even nicer opportunity to buy some Aussie dollars.

From the Daily Pfennig's Chuck Butler:

The Bank of Canada (BOC) did leave rates unchanged yesterday, as expected... The Bank said that "against a backdrop of robust global economic expansion and strong commodity prices”, Canada’s “economy is now operating further above its production potential than had been previously expected." The went on to warn about the risks of a global slowdown.

Makes you wonder why they kept the dust covers on interest rates, eh? Well... I think I explained all that yesterday, so I won't get into it again... But, the BOC is walking in tall cotton right now, and they had better be careful... Runaway inflation could hit their economy in a NY minute...

So... With the BOC warning about a global slowdown, the Commodity currencies got sold... So... One Monday, the high yielders got sold, and on Tuesday the Commodity currencies, many of which are also high yielders, got sold... One would expect a move similar to this given the strong upside move of the Commodity currencies recently. So... Hold on tight, use your seatbelt, and keep your arms and legs inside the vehicle at all times!