First, the head of ANZ:
ANZ chief Mike Smith said yesterday that the currency was likely to resume its climb above $US1.10, and one of the world’s leading foreign exchange experts predicted the dollar would continue to rise and could hit $US1.30 in 2013 and $US1.70 by 2014.
This spells bad news for non-resource sectors such as manufacturing and tourism…
“I can’t see that there is anything to knock it off its perch because it’s not only the strong Australian dollar, it’s also the weak US dollar,” Mr Smith said yesterday.
“And when you think about what is happening in the US, I can’t see them increasing rates for at least 18 months and that will have an impact.”
Next, a global currency expert:
Global currency expert Savvas Savouri, of the British-based Toscafund hedge fund, went a step further, predicting the greenback would be relegated to a “museum” …
Dr Savouri, in Sydney for a conference, predicts the dollar will reach $US1.30 by 2013 – and $US1.70 by 2014, as the greenback relinquishes its “exorbitant privilege” as the world’s default currency.
What the ‘experts’ aren’t telling you, is that the reason for the Aussie dollar’s rise is directly due to the slow-motion collapse of the US economy, and the unintended consequences caused by those trying to prop it up.
How’s that, you ask?
For several years, the US Federal Reserve has been creating literally trillions of US dollars out of thin air (“Quantitative Easing” 1 and 2). By doing this, it believes it will achieve two things – (1) Keep interest rates in America extremely low (near zero), preventing further collapse in the housing market and broader economy; (2) pump up the stock market, creating public “confidence”. And it has achieved both those aims.
But what about the unintended consequences?
First, the immediate effect of printing money is to weaken the American currency. That is the main reason why the Aussie dollar has risen against the USD.
It is not because our currency has strengthened. It’s because the USD has been (deliberately) weakened.
Much of those trillions in near interest-free US money has been poured into speculation by international banks and hedge funds. What are they speculating on?
Mostly on commodities – which our economy sells.
Hundreds of billions in “hot money” has been flowing from the Zero-Interest-Rate-Policy (ZIRP) United States into our currency, through speculation on our commodities. Driving up our currency’s apparent strength.
But “hot money” can flow out again just as fast. As we saw in the GFC. And again just last week, when the Aussie dollar hit US$1.10, and plummeted to US$1.05 in three days … due to a single bad economic news data release in the US:
During the peak of GFC panic in Sep-Oct 2008, the Aussie dollar collapsed from US$0.98 to just US$0.60 in barely two months:
When you compare the Aussie dollar to the Euro, for example, it’s easy to see that our dollar only “appears” to be super strong when it is being compared – as usual – only to the ever-weakening USD.
Our dollar has risen against the Euro too. But by far less. And again, only after first falling significantly in the GFC. Then rising only after the US Federal Reserve began seriously printing money, which has been poured into commodities and commodity currencies:
Australia is a little cork floating on the ocean of other nations’ economic decisions.
As Barnaby forewarned in late 2009 / early 2010, the US is effectively defaulting on its debt right now.
Destroying the value of your currency by money printing, has always been the most common way in which nations have defaulted on their debts.
Barnaby was right.