I am not spending much time in the markets these days (very busy with other business issues), but am ruminating over two or three big ideas for 2011.....
1. Sell AUD - yes, the AUD has recently topped out and turned down; with the floods there will be no interest rate rises and a squeeze on consumption (other than construction of course) -- the big issue at hand though is that the currency is simply fundamentally overvalued (just look at housing costs, costs of consumables) and long speculation in the currency has been quite high. The question is "When do you sell?"....because the catalyst for a major drop will be Chinese production flattening, or declining.....
2. Sell GBP - GBP has bounced down from 1.60 after the GDP figures were released....so interest rate increases will be deferred at the least...the real question is --- shouldn't the looming fiscal cutbacks and tax increases flatten growth, and if the prospects for growth diminish, shouldn't this be reflected in the currency?
3. Sell US equities - all time highs again, not many bargains - do you short this or just stay out for a while?
This is a trading market....the Fed is printing money so paper assets should appreciate, but there has been a good run and it would appear that there should be some pause.....(?)
More color on AUD below:
"The Aussie has lost 3.4 percent for the past month, the worst performer among 10 developed-country currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The currency weakened on concerns floods in the state of Queensland will dent the nation’s economic growth."
Australian Dollar Falls After Consumer Prices Increase Less Than Forecast (from Bloomberg news)
Australia’s dollar is “down a little bit as a consequence of the lower-than-expected CPI because you had a drop in the OIS market,” said Richard Grace, chief currency strategist in Sydney atCommonwealth Bank of Australia.
The Australian dollar fell 0.8 percent to NZ$1.2962 as of 11:30 a.m. in New York. The Aussie dropped to 98.98 U.S. cents from 99.74 cents yesterday.
New Zealand’s dollar, known as the kiwi, gained 0.1 percent to 76.36 U.S. cents.
Australian consumer prices rose 0.4 percent in the fourth quarter from the previous three months, the Bureau of Statistics said in Sydney today. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.7 percent increase.
Swaps Show
Australia’s 12-month overnight index swap rates, a security based on what investors expect the central bank’s rate will average during that period, declined to 4.9790 percent from 5.0180 percent yesterday. The Reserve Bank of Australia left the overnight cash rate target unchanged at 4.75 percent last month.
The Aussie has lost 3.4 percent for the past month, the worst performer among 10 developed-country currencies, according to Bloomberg Correlation-Weighted Currency Indexes. The currency weakened on concerns floods in the state of Queensland will dent the nation’s economic growth.
Demand for the New Zealand dollar increased as the MSCI Asia Pacific Index of stocks rose 0.7 percent.
“Higher stock prices boost appetite for risk and tend to spur buying of commodity-linked currencies,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd.
