WHERE IS THE AUSTRALIAN DOLLAR HEADED?
The Australian Dollar has fluctuated against the USD a lot in recent times. While technical analysis suggests that it could rise in the near term, a look at the fundamentals shows that we may be in for something much starker long-term. Read on to find out what we mean.
When it comes to capital markets, it is generally accepted wisdom that no one really knows anything. After all, human societies and capital markets are complex systems, which are interconnected, diverse, interactive and adaptive. There is simply no algorithm or method which can reliably predict what will happen in the future in complex systems, because the number of variables that affect outcomes are just unknowable.
But it’s fun to play the game.
Human beings are nothing else if not curious creatures. They’re also deterministic by nature, and they bow to authority readily. That is why in spite of many years of track record of economic pundits where they fail to predict the previous crash, people still go back running to them for their thoughts about the next crash. And the pundits give people what they want, arguing that ‘this time, it’s not the same.’
So please take whatever we say with a giant dollop of fresh sea salt.
Currently, governments around the world are playing a game with their currencies. It could be called, ‘Who will hit the ground first?’ In this game, every government devalues their currency in a bid to improve their balance sheets. The United States is doing it. Japan is doing it. Europe is doing it. Some of the economists have called this a ‘race to the bottom’.
Until recently, Australia has not taken part in these currency wars. But they’ve had to give in, and once they did, they began to inflate property bubbles within the country. New Zealand also joined the game later, and now the Pacific nations are hook line and sinker all in.
The end game for any cheapening of currency – in the long term – is severe devaluation of paper cash and bubbles in assets. These assets could be property, stocks, bonds or gold. And once the end game comes, people holding hard assets generally win over those who don’t.
But until the game of musical chairs keeps going, people will keep running and all is well. During this time, the Australian Dollar will probably rise against the United States Dollar, because the level of money printing is much higher over in the US than it is here in Australia