The Australian dollar may be the currency from down-under, but it will not be down for long. It will be going up in a big way…
Having pulled back from $1.10 to below 90 cents for a time, the Australian dollar is again likely to move to above parity to the US dollar in the coming months.
Source: Blomberg.Com
Opportunity knocks when it comes to this currency, as the greatest profit potential in any market always comes out of situations where the consensus view is incorrect. In other words, the market is not positioned for the true fundamental reality that exists, but rather for a misguided opposite view of the economic landscape.
Such is the situation with the AUD right now, and has been for some time. Based on a false premise that China would slow dramatically and the resources boom was over, a story told often enough in recent years, we have not only seen significant sell-offs in the Australian dollar, but also in mineral prices.
The situation gets even more interesting however, as there has been “aggressive promotion” of this bearish view of China and commodities, and therefore the Australian dollar and mining stocks, in the media generally. As a result there has been a widespread acceptance by the market that the currency would decline this year to 80 cents. That has been the consensus view. Yet the “real story” is quite different. China continues to increase imports of minerals as the urbanization process expands and sweep across relatively untouched regions of the country. There is also a keen determination on the part of Beijing to ensure equality of opportunity for all its citizens in terms of education and health services across the nation, and extraordinary railway construction is likely to continue for many years to come. The modernization we have seen down the eastern seaboard over the past 15 years, is really now only just getting started across the rest of China.
Subsequently the on-going strong expansion of the Chinese economy is very likely, above 7% and possibly back to near 8% GDP, and is something that is not at all priced into the value of the Australian dollar.
Australia itself has recently had a change of government with a shift to a more conservative political party and a renewed focus on business and self-advancement. While some policy initiatives are not immediately popular, they are likely to contribute to an enhanced productivity outcome for the nation as a whole. The internal domestic outlook is therefore more positive as well.
The real core driver of the value of the currency, however, remains the demand for the nations mineral and agricultural output, and that demand is only going to increase substantially as a result of continued economic modernization and expansion across the rest of China, and indeed all of Asia. Australia is just 23 million people, less than the population of the city of Shanghai, sitting on top of the wealthiest pile of rocks in the world, and 2 billion people just to the north, greatly desire those mineral riches. It is not difficult to work out which way the currency will go.
The investment opportunity however, is really a product of the consensus view having been wrong in expecting a total melt down of China. The AUD selling, with even names like Goldman Sachs at around 89 cents and recently suggesting a target of 80 cents, has been intense. Yet the currency is already starting to bounce significantly because of continued genuine demand.
The real fundamental picture is extremely bullish, but the consensus expectation has been severely negative. A great opportunity therefore presents itself. All year I have consistently forecast an initial rally to 97 cents, and then onward to $1.0300 by year end. An Easy and Effective Way to Profit from a Rising Australian Dollar
An individual trader interested in taking part in the rise of the Australian Dollar could arguably do it most easily and cheaply through the use of a binary option contract like those offered by Nadex.
There are relatively low barriers to getting started with exchange traded binary options. To buy a currency binary option contract, a trader would only need to have the funds in their trading account to cover the maximum loss – should it occur. Also, Nadex options allow a whole host of expiration dates to meet trader needs:
Intraday, Daily and Weekly contract lengths and expiration times are offered.
If you are compelled by the AUD’s positive prospects over the next several months, binaries are certainly an easy way to take part. Remember the old adage of the trend is your friend; with binary’s the limited risk aspect allows you to stomach the market rough patches.
Clifford Bennett
