The RBNZ
announced yesterday that in the month of August it was an active seller of its
own currency to the tune of more than half a billion dollars and this was the
largest intervention made by the RBNZ in 7 years. The Kiwi Dollar weakened on
the news but what sent it 1 cent lower within an hour was when New Zealand
Prime Minister John Key spoke to the press. Mr Key a former large currency
trader himself said the following to the press on Monday.
"I
happen to actually support the view that the Governor has that the exchange
rate is overvalued, so if they have intervened, it would be a matter for them,
but it would seem fairly logical, I think at the level we’re at, [US]78 odd
cents, we’re still at very high levels. In the end, the Goldilocks rate, not
too high, not too low, just about right, I don’t know, [US]65 cents maybe,
certainly ... lower than it is today. Just because I think that’s the
rate that works for exporters doesn’t mean it’s the rate it’s going to get
to."
The RBNZ sold
in August $521 Million of its Kiwi Dollar holdings but what is interesting is
the fact that in the month that it did sell its own currency the Kiwi Dollar
only dropped by 2c. The following month of September the Kiwi Dollar has
dropped 6c. The intervention and comments made by the RBNZ simply goes to show
that if you want to trade against a Central Banks views and intentions then you
are likely going to be on the losing side of the market more often than not.
The Aussie Dollar,
Aussie Bonds and the Aussie share market has been offering investors solid
returns for a number of years now. International investors who live in
countries that have extremely low interest rates have been enjoying investing
in Australia and New Zealand where they have been able to achieve higher
returns on investment and do it relatively safely and securely. For example
buying the AUD is a positive carry trade of 2.5% annually, buying 10 Year
Australian Bonds delivers around 2.5% to 3.5% annually depending on the type of
Bond you buy and many blue chip shares in both countries have been delivering
similar or better dividends. Hence when international money comes into our
financial markets to buy these products it not only helps support bond and
stock markets it also helps support the AUD and NZD simply due to the fact you
need to pay for your purchases in Aussie or Kiwi Dollars.
But recently we
have seen the tell-tale signs that many of these investors are bailing out of
Australia and New Zealand and the reason why is very simple. If you buy a bond,
invest in Aussie or Kiwi Dollars or are relying on a dividend from the share
market, the price you pay for that investment is important. If it falls in
value beyond what your dividend is going to be annually you are losing money.
And that is exactly what is happening to many international investors who have
bought the AUD or NZD, Aussie or Kiwi Bonds and Aussie or Kiwi Shares.
Want to learn more about investing in the Australian Dollar? Register to attend the free weekly coaching from LTG GoldRock in their online Trading Room.
The message
today simply is get on with your day. Get your Order Sheet trades updated and
don't bother looking at your charts. Try it.
Today is just
one of those days when there isn't much of anything going on that will get
markets rocking. Unless someone says something unexpected and we can never
predict that anyway.
I have had a
sneaky look at my charts already and I will look again later this afternoon but
between now and then I won't bother. Unless there is a valid reason why
you should, you shouldn't bother either.
Perhaps take a minute to go to www.ltggoldrock.com to read our latest Trader Success Stories...
His name is
Roubini and he is respected amongst banks, institutions and economists alike
for accurately warning and predicting the Global Financial Crisis. He's now
saying the Aussie Dollar is about to fall by as much as 20% in value from its
current levels. If he's correct that would put the AUD vs the USD at around
0.72c. It is difficult to argue against him as the AUD seems to have a number
of factors conspiring against it which I have been reminding you about for
close to 12 months.
US interest
rates are likely to rise and Australian interest rates are likely to remain on
hold or even fall further. The Aussie economy has a lot of genuine question
marks against it however other than interest rate differentials the bulls
holding long AUD positions have one major factor to be concerned about. China
and low commodity prices for the foreseeable future. Iron Ore is still hovering
around $80 a tonne and is not expected to rally any time soon. China's housing
and construction boom has slowed significantly and China's insatiable appetite
for our commodities has slowed and thus commodity prices are significantly
lower than they were at their highs in 2013. In fact if you consider Iron Ore
was $140 a tonne in early 2013 and today it's trading at $80 a tonne. It’s no surprise
this is contributing to the AUD demise.
Many small tier
miners will struggle to even dig it out of the ground for that price and
government tax revenues will be lower of course. Roubini says that Australia
will struggle to grow at 2% next year and predicts interest rates to go lower
than the current 2.5% level. If that was to be true and the US economy
continues to grow at current rates and the US Fed puts interest rates up as
predicted then 0.70c for the AUDUSD is certainly not out of the question.
The AUDUSD hit
a fresh new monthly low of 0.8851 Monday with the 2014 yearly low of 0.8659 now
less than 2 cents away. The AUD has dropped over 5 cents in value just this
month and according to Bloomberg this makes it the worst performer amongst 10
developed nation currencies.
Andrew Barnett, LTG GoldRock reviews the latest Currency Trading News every day in the Goldrock Insider Report.
The "No" vote won
the Scottish independence vote battle but it was the amateur traders that lost
on currency markets on Friday. Many got sucked in trying to speculate and buy
the Pound on a likely "No"
vote. They got one thing right but the most important thing wrong. We talked
about it all week that the Pound would likely benefit from a "No" vote win
and I still hold that view. Over the medium to long term I expect the Pound to
rally again but the price movement on Friday was a typical example and great
lesson for us all on how to avoid being sucked into the grasp of the smart
money. Here is what essentially happened to too many of the buyers.
The "No" vote was
the likely victor in all polls leading up until ballot booths closed. The
amateur traders couldn't help themselves and started buying the Pound on mass
on the news of a "No"
vote victory. And yes it did initially rally. But on virtually every Pound
currency cross you will see this morning a quick and sharp pull back in price
occurred. The smart money simply waited until the market was saturated with
buyers and they sold the Pound off right back at them. Leaving the buyers
confused, stopped out or wondering what to do next.
So where is the
Pound likely to go long term? Back higher in my opinion but it may take a few
days or a week or so before that overall trend gathers pace again. The UK
economy is going to gain confidence again, now that the Scots are staying put.
The interest rate speculation will gain momentum again once we receive some strong
economic UK data that reminds the market that the Bank of England is likely to
raise the official cash rate in 6 to 9 months.
Be patient and
consider a long trade on the Pound via the LTG GoldRock Daily Order sheets. If you have any questions about how the markets reacted simply join us for our weekly live coaching sessions Monday & Tuesday at 5pm AEST. Go to www.ltggoldrock.com to register.
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