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Dollar dazzlers

The Aussie Dollar hit a fresh 13-month high this week boosted by a positive investor sentiment and following signs that our friends across the Tasman have clawed their way back recession. But will the dollar continue to dazzle, and what does that mean for the broader economy? Here to share his thoughts on the matter is Kinetic Securities’ Clifford Bennett.

Bennett called a recovery in the stock market back in March, and Switzer says so far, so good.

“Our forecast all year was for the Aussie Dollar to get to 89 cents this year and I think we’re on track for that. You always have that risk that you fall tantalisingly close, then you fall back away. That’s a possibility here in the near-term, but I think the longer-term outlook for the Australian dollar is a lot higher. In the years to come, we’ll probably be well above parity.” 

Bennet says the Aussie dollar could be buying around 91 US cents, “but that would be very toppish this year I think”.

So what could derail the dollar around Christmas or New Year? For the answer, Bennet says you have to remember the dynamics of trading.

“Once everyone who wants to own something has bought it, you can only go down, regardless of the news. I think the Australian dollar might be approaching that level in the next few weeks to months where the whole world has finally cottoned on to the idea that the Australian dollar perhaps is the standout, most compelling currency story in the world next year,” he says.

Bennet says the worst he thinks the dollar will do is 82 US cents.

“We would definitely get a meltdown, but it would be short-lived because … we’d spook everyone out of their high leverage positions that they again have across all markets,” he says, adding that if things turn sour with a major European bank, they’ll be looking elsewhere – like Australia – to store their money. “Then they just buy the same positions back again. So there is a vulnerability in terms of some untoward shock to occur, but it wouldn’t last long.”

Parity

When does Bennet think parity is likely to happen? He says late 2010, early 2011.

“You have to think in terms of numbers like 1.08,” he says. “Well above parity.”

Bennett says the market oversold the dollar down to the low 60s, but it has been brought back up and is getting towards “fair fundamental value”, which he thinks is closer to parity.

“We’ll get an extended period of sideways consolidation rather than a steep fall,” he says.

The parity story for the Australian dollar is that their world will have to be viewed differently, says Bennet. He says it’s no longer about the world trading with the US, which was the US-centric model.

“It’s about intra-regional trade, whether it be South America, Eastern Europe or Asia,” he says. “Asia is the most vibrant intra-regionally trader in the world at the moment and that’s just going to continue to take off and that’s good for Australia,” he says, adding that the US global economic dominance has halved and will continue to subside.

“So the US dollar has a lot of historical unwinding of the previous era US economic dominance to go.”

Bennett says commodities are important to the Australian dollar story, “as are our high yields, as is our strong domestic growth and our robust export sector. Commodity exporter on the doorstep of Asia – geologically and geographically it’s a dream run.”

Watch the Euro

How much further has the US dollar got to fall? Bennet says the Euro, which is around 1.47 at the moment, is a good gauge.

“Our forecast for the end of this year has been 1.49 to 1.53. Next year we could go 1.65, maybe 1.85. So another 20 per cent, at least, [on the] downside.”

If Wall Street charges off again, could a passion for US equities be good for the Greenback? Bennett says he has been “bullish” about US equities all the way, not because of their domestic stream, but because of their global revenue stream.

“I saw the rest of the world economy bouncing back, with more business to be done by US multi-nationals, but also their currency falling is again catapulted to rather high revenue levels,” he says. “So the major multinational US corporations will have way above consensus expectations in terms of earnings over the next one to three years. It’s partly because of the falling US dollar.”

He says there might be some jitters coming out of the G20 and someone might say something a strong dollar policy, “but behind closed doors, they’re happy for the US dollar sink because it will save the US economy and is therefore good for equities”.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

 

Published on: Thursday, October 01, 2009

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