- - A review of the 4 major factors affecting the value of the Australian Dollar against all currencies in 2012
- - Volatility set to continue, hedging your currency purchases in 2012 a good way to protect your company – talk to your dealer at World First
US Economy ( + U.S Stocks & Earnings )
- Most economic indicators are pointing to an improvement in the U.S economy, some focus has fallen off the US to Asia, however the U.S remains by far the biggest and the most influential economy in the world
- If the U.S economy continues to improve, this will spill out to other countries
- The performance of the AUD is strongly linked to US economic performance
Continuing European Debt Crisis & China slowdown
- Italy has more than $300 Billion Euro of debt maturing in 2012 that they will have to roll over and ask investors to buy. This is around 30% of the total of outstanding debt Italy holds. 2 year interest rates are around 5% & 10 year interest rates are requiring Italy to pay in excess of 7% to investors per year.
- This is a ticking time bomb and must be dealt with at some point, probably when Italy runs out of cash.
- Hungary’s interest rate on its debt is 10%, and has recently been seeking aid
- The next countries in line for bailouts are just to huge for the rest of Europe to bailout, the ECB must print money to reduce these interest rates or restructure their debts.
- Merkel & Sarkozy are using their positions to force countries to balance their budgets
- If European confidence falls, and Europe goes into a recession overall, this will continue to slow demand for China’s exports, and in turn reduce demand for Australian minerals, affecting interest rates and confidence in Australia.
Iran
- Is Opec’s 2nd largest oil producing nation, also has massive natural gas reserves
- Huge percentage of the Oil from the Middle East flows through the Persian Gulf, as recently as a few days ago the U.S was told not to allow its “ American warship into the Persian gulf again, Iran will not repeat its warning”
- Iran holds a major playing card, if it withholds Oil exports, or if production and distribution of Oil is hindered, Oil prices will spike bringing the economies of Europe and the U.S to a standstill, Obama will not want this in an election year
U.S Elections ( Nov 2012) and U.S budget deficit argument
- One of the biggest “can’s down the road” is the massive U.S debt, and budget deficit which is adding huge amount of debt to the stockpile each year
- If the Democrat’s continue to have no majority in the house of representatives at the end of this year, this will cause a massive fight to broker a deal with republicans on reducing the deficit which will affect market confidence
- U.S last year lost its coveted AAA rating, if the debt stockpile keeps growing at a exponential rate, this will effect investor confidence, and market confidence in US stocks, bonds & securities, if the U.S slows, the world economy slows.
In review, 2012 is set to be a very volatile year for the Australian Dollar, although there are some positive signs out of the U.S, significant risks remain to the world economy, and the Australian economy. To prevent your company from being tied up in “predicting” the value of the AUD, talk to your dealer about hedging contracts which can protect the company against adverse movements in the exchange rate, whilst enabling the company to benefit if the rates move in your favour. |
