Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.

html

Search
Custom Search

The Market Oracle

Foreign Currency
Trading
Experience The
Platform Used By
Professionals. Free 14
day Trial.
www.cmcmarkets.com.sg/Trial_Account

Forex Trading
Singapore
Top Forex trading -
Compare Free Demo
Accounts
www.MoneyLine.sg

Oil Prices In 2011

Identifying where the
oil markets are
headed in the future.
New rpt.
wealthwire.com/Oil-Outlook

2011 Forex
Opportunity
Take a 100%
Risk-Free Opportunity
To Try Out UFXBank
Forex Today!
UFXBank.com/Open+Account+in+5min

Is SGD Heading
Up/Down?
You Can Make Big
Bucks! Open a Forex
Trading A/C Now
AVAFX.com/Singapore_Forex

Best of the Week

Most Popular
1. UK Interest Rate Forecast 2011, Paralysed Bank of England Still Fears Financial Armageddon - Nadeem_Walayat
2.UK Interest Rate Forecast 2011 - Conclusion and Implications - Part 2 - Nadeem_Walayat
3.Physical Silver Price is Really $50 per Ounce (80% Premium on COMEX Silver Non-Delivery) - Chris_Kitze
4.Enemies of the Middle Class - Gary_North
5.Q.E. Money Printing Negative Feed Back Loop to Hyper-Inflation Oblivion - Jim_Willie_CB
6.The Support For Slavery in the United States as Public Unions Bankrupt Cities and States - Mike_Shedlock
7.Delusional Crowds, Booming Economies, Stock Markets and the End Game - John_Mauldin
8.End Of The Secular Commodities Bull Market? - John_Hampson
9.China Housing Market Bubble Bust Could be Dubai X1000 - Markus Bergstrom
10.Dubai Property Market Crash BubbleOmiX Update 2011 - Andrew_Butter
Last 5 Days Analysis
Negative Returns for a Decade, Is Gold in a Bubble? - 15th Mar 11
Japan's Nuclear Crisis Leads to 'Panic' - Nikkei Crashes, Gold Down 1% - 15th Mar 11
Secular Stock Market Trend Game Changer - 15th Mar 11
Will Japan Earthquake Send Gasoline to $5 - 15th Mar 11
Middle East Crisis Nothing to do With Democracy Everything to do with Food Prices - 15th Mar 11
RIP Shadow Banking System, Long Live QEx - 15th Mar 11
Nuclear Power Industry Praying Japan Will Avert a Nuclear Disaster - 14th Mar 11
Three Flawed Fed Exit Options - 14th Mar 11
How Real Estate Came to Own Us - 14th Mar 11
Why Gold and Silver Stocks Are Positioned to Soon Move Much Higher - 14th Mar 11
The Exponentiality of Municipal Costs (and Some Advice for Endowments and Foundations) - 14th Mar 11

1 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

The Rule of Gold After the Financial Collapse - 14th Mar 11

Stock Market Investors, It’s Time to Get Out! - 14th Mar 11
Will Stock Sell-Off Trip Up the Bull Market? - 14th Mar 11
Japan Risk of Nuclear Catastrophe after Explosion Impacts Financial Markets - 14th Mar 11
Australian Gold Stocks Sector Dynamics - 14th Mar 11
Japan Nuclear Melt-Down? The Government to the Rescue - 14th Mar 11
U.S. Debt and Deficits Ensure Violent Dollar Sell-Off Ahead - 14th Mar 11
Japanese Stock Market Trend Forecast Post EarthQuake - 14th Mar 11
The Gathering Political and Economic Storm - 14th Mar 11
A Good Looking Economy is Not Always a Good Economy - 14th Mar 11
What the End of QE2 Means for Gold - 14th Mar 11
Stock Market Correction May Be Ending - 14th Mar 11
Japan Earthquake: Impact on Crude Oil, Fuel and Nuclear Power - 13th Mar 11
Do or Die Week for Stocks and Gold - 13th Mar 11
U.S. Economy on Steroids, Poverty Levels Equal to the 1930s - 13th Mar 11
Britain's Bungling "Secret Intelligence Service" in Libya - 13th Mar 11
Five Principles That Made America Great - 13th Mar 11
Inflation and Hyperinflation in the United States - 12th Mar 11
Japan's Chernobyl, Nuclear Power Plant Explodes, Meltdown in Progress - 12th Mar 11
Stock Market Correction Confirmed - 12th Mar 11
The Commodity Price Rollercoaster and the CRB Golden Ratio Failure - 12th Mar 11
Stock Market Trends Impacted by Social Moods - 12th Mar 11
Richard Russell Says Gold is the Safest Currency - 12th Mar 11
The Day of Gold-Plated Public Sector Pensions are Numbered - 12th Mar 11
SPX has a Classic Reversal Pattern - 12th Mar 11
Crude Oil, Gold, and Silver – Important Timing Connection? - 12th Mar 11
Expect Silver to Keep on Sizzling - 12th Mar 11
Investor Portfolio Preparation for Hyperinflation, Assets for Protection and Profit - 12th Mar 11
Silver Tops - 12th Mar 11
Libya Food Aid and the Global Food Crisis - 11th Mar 11
The Constraints on Silver Supply - 11th Mar 11
Markets Rocked By Japan Megaquake, Gold Mixed as Yen Surges - 11th Mar 11
Stock Market Correction Over? - 11th Mar 11
ECB Stuck in Sovereign Debt Garbage, Germany Sets High Price for Bailout Changes on Greence and Ireland - 11th Mar 11
Back to the Well? - 11th Mar 11
U.S. Households Net Worth Advances, Outstanding Debt Declines - 11th Mar 11
Gold, Stocks and Commodites: Save, Invest, Speculate, Trade or Gamble? - 11th Mar 11
Stock Charts, First Thrust Down, Snapback Rally, Bombs Away - 11th Mar 11
Undiscovered Energy Gems Sparkle in Uranium and Coal - 11th Mar 11
The SPX Stocks Index Dances Between Danger and Excitement - 10th Mar 11
China Housing Market Bubble Bust Could be Dubai X1000 - 10th Mar 11
Stock Market Flash Crash Risk Assets, Bears Are Gaining Traction - 10th Mar 11
Silver May Rise to $40/oz in March on Tight Supply - 10th Mar 11
Bank of England Interest Rate Indecision, UK Rates Held at 0.5% for 2 Years - 10th Mar 11
Darnall Community Health, Sheffield UK NHS GP Patient Survey Results Update - 10th Mar 11
Gold and Silver Parabolics 2011 - 10th Mar 11
The Fed's Credit Report; No Light in the Tunnel - 10th Mar 11
Stealing from Social Security to Pay for Wars and Bailouts - 10th Mar 11
Gold and Stocks on the Verge of Breaking Out! - 10th Mar 11
Value in Small-Cap Gold Producers - 10th Mar 11
Central Banks Lying About Everything, Global Economy Scam Goes Critical - 10th Mar 11
Signs of Impending Doom for Global Economy 2011 - 10th Mar 11
Which Commodities Are Benefiting From QE2? - 10th Mar 11
Gold Record High, How to Protect Your Profits - 10th Mar 11
That Ticking Sound You Hear is the U.S. Bond Market.... - 10th Mar 11

Free Instant Analysis

2 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

Market Oracle FREE Newsletter

Subscribe Now

Analyzing the Australian Dollar, Up, Down, and Under

Currencies / Forex Trading Jul 22, 2009 - 01:42 PM
By: Gary_Dorsch

Viewed from the outside, trading in the arcane world of foreign exchange might appear to be quite glamorous. However,
attempting to anticipate the next major move in the Euro, yen, or British pound, can be injurious to one’s mental health or
pocketbook, especially when schizophrenia often rules the day. Yet despite the enigma that surrounds the $4-trillion per day
FX market, when staring at the weekly price charts, the outside observer will notice established and methodical price trends
in the currency markets that can last for weeks, months, or even years.

The Australian dollar is increasingly popular with currency speculators, because of its volatile price swings, a relative lack of
central bank intervention, and lends exposure to Asian tiger economies and the “Commodity Super Cycle.” The “Aussie”
dollar is currently the sixth-most-actively traded currency in the world, behind the US-dollar, the Euro, Japanese yen, British
pound, and the Swiss franc, and changes hands in roughly 6% of worldwide foreign-exchange transactions.

In the 26-years since the Aussie dollar was floated in the open market, its highest value relative to the US-dollar was
98.50-cents reached on July 15, 2008. Its lowest point was 47.75-cents in April 2001. Rich in natural resources and
occupying an area the size of the United States, Australia is a major exporter of agricultural goods, particularly wheat and
wool, minerals such as iron-ore, gold, nickel, copper, and uranium, and energy, such as natural gas and coking coal.

Currently ranked as the 14th largest in the world, Australia’s $825-billion economy is dominated by its services sector, which
accounts for 68% of its annual output. Yet although the agricultural and mining sectors account for only 10% Australia’s GDP
these sectors account for nearly 60% of the nation’s exports. For decades, Australia’s balance of trade has been linked to
trends in the commodity markets, which in turn, has brandished the Aussie’s reputation as a commodity currency.

3 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

As the world’s fourth-largest producer of gold, the Australian dollar displayed an 84% degree of correlation with the yellow
metal until 2008. Since then, for the 12-months ended June 2009, the Aussie dollar has been estranged from gold, and
instead, became wedded to the copper market, displaying an 82% degree of correlation with the red-metal. Since coking
coal and iron ore, key ingredients for making steel, are Australia’s two biggest commodity exports, the outlook for the global
economy and demand for steel, are influencing the Aussie dollar.

During the height of the global banking crisis, the Aussie dollar was tumbling in free-fall, skidding from a record high of 98.50
US-cents in July 2008, to as low as 60-cents level by October. To cushion the slide, the Reserve Bank of Australia (RBA)
intervened to buy A$3.15-billion of its currency in October, as the turmoil in global markets sent the Aussie tumbling to
five-year lows. That was the largest amount ever bought by the RBA in a single month and its first purchase since 2001.

The RBA’s intervention was a paltry sum of cash in a market that trades about $265-billion per day. But the intervention
provided a degree of psychological support, as traders paused to calculate what other tricks the central bank might have up
its sleeves. As fate would have it, riding to rescue of the Aussie dollar and its mining industry, was Beijing’s surprise decision
in November 2008, to spend 4-trillion yuan ($585-billion) on various infrastructure projects, equal to about 15% of the entire
Chinese economy, after 20-million Chinese migrant workers had lost their jobs.

“We face unprecedented difficulties and challenges,” China’s Premier Wen Jiabao told the parliament in Beijing on March
5th, “The nation needs to reverse the economic slide as soon as possible,” he said. Since Jiaboa’s speech, the Australian
dollar began climbing higher along an upward trajectory, from 64-cents to as high as 82.25-cents in June. China bought
one-fifth of Australia’s total exports in March, and its imports soared 80% in the first four-months of this year, with the
export revenue cushioning the Australian economy from the dire effects of the global recession.

Australian exports to China helped to offset sharply lower sales to other key trading partners, with exports to Japan down
36%, and sales to the US down 33% from their peak. Still, the biggest threat to Australian miners wasn’t the lack of demand
from Chinese steel mills and factories, but rather locking in sharply lower prices for its principal commodities, with one-year
contracts for coking coal fetching 55% less than a year earlier, and iron ore prices about 30% lower.

4 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

About half of the iron ore that Australia’s Rio Tinto (RTP) mined in the first half of this year was sold on a spot basis, with
about 86% shipped to China. RTP reached final price settlements on iron ore shipments to Chinese, Japanese, Korean, and
Taiwanese steel mills that cut contract prices by 33-percent. China, buyer of half of all traded iron ore, initially sought a price
cut of 45%, but softened its demands after spot iron-ore prices rose above $90 /ton for the first time in nine months.

Also working in Rio’s favor is data suggesting non-Chinese demand is slowly returning. In June, iron ore exports to countries
other than China from Australia and Brazil doubled from the previous four-months. For Australia’s mining giants, BHP Billiton
and Rio Tinto, the saviors during the global economic meltdown, were Chinese and Indian steel makers - the only major
producers to increase output this year. Nearly two-thirds of the world’s steel output comes from Asia, and world leader,
China increased its output to a record 55-million tons in June, while India expanded its steel production by 1.3% in the first
half.

Overall, world steel output plunged -21.3% in the first six-months of 2009 from a year ago, the World Steel Association
said. North American output almost halved while European output was down 43.2 percent. But China’s crude steel
production, the largest in the world, rose to a record 266-million tons in the first half as Beijing’s $586-billion stimulus plan
boosted demand from builders and carmakers. Benchmark Chinese steel prices have gained 17% since April 1st.

In order to feed its steel mills, China imported 55.3-million tons of iron in June, up 3% from May to reach the second highest
level on record. In the first six-months of the year, total imports reached 297-million tons, up +29.3% from a year earlier,
with steel mills and traders buying in large volumes. Rio Tinto reported on July 15th, an 8% rise in Q’2 iron ore production
from a year earlier.

The direction of Australia’s mining companies is of great interest to currency traders based in Tokyo, - the biggest movers
and shakers in the Australian dollar. In the second half of the twentieth century, Australian trade shifted decisively away
from Europe and North America to Japan and other East Asian markets. Australia’s largest export markets are Japan,
China, the US, South Korea and New Zealand, and likewise, the Aussie /yen exchange rate has become a hotbed of
speculation.

With the Bank of Japan (BoJ) pegging its overnight loan rate at 0.1%, the infamous “yen carry” trade has become popular
again. Arbitrageurs and traders are borrowing in yen at cheap interest rates and locking in higher yields offered by the
Australian dollar. Since March 18th, when the BoJ boosted the amount of JGB’s it would buy to 1.8-trillion yen
($18.3-billion) a month from 1.4-trillion yen, carry traders have been bidding up the Aussie dollar to as high as 75-yen.
For traders with greater risk appetites, Aussie miners have been a favorite target for speculative profits.

5 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

A number of large multinational mining companies including BHP Billiton, Newcrest, Rio Tinto, Alcoa, Chalco, Alcan, and
Xstrata operate in Australia. There are also a lot of small mining and mineral exploration companies listed on the Australian
Stock Exchange (ASX). Overall, the materials sector represents 20% of the ASX by market capitalization, and almost
one-third of the companies listed.

Mining’s share of Australia’s economic output is only 6%, yet minerals and metals account for roughly 35% of Australia’s
exports. In Canada and Norway, commodity exports also play as significant a part in the economy. In Canada for instance,
mining represents about 3.6% of the Canadian economy but 32% of its exports. In Norway, the oil industry represents 19%
of economic output, but 46% of exports. In sharp contrast, the US mining sector represents only 1.6% of American GDP.

Following the intricate web of inter-market connections, Australia’s miners are tracking the direction of the Baltic Dry Index,
which measures the cost of shipping key raw materials, such as iron ore, coal, grain, cement, copper, sand, gravel,
fertilizer, and plastic granules. Because the index tracks the cost of shipping raw materials, instead of intermediate or
finished goods, it provides a clear measurement of the volume of global trade at the earliest possible stage.

The index is not tradable, which means the only legitimate users are booking cargo ships, making the Baltic Dry Index,
devoid of speculative content. The Baltic Dry Index hit an all-time high of 11,793 on May 5, 2008. Then it plunged to 663 on
December 5th, a loss of 95-percent. Since its December low, the index has briefly traded above 4,000, seen by the “green
shoot” crowd as proof of a revival in global trade, even though the index is still down 68% from its May 2008 high.

Beijing is taking advantage of beaten-down commodity prices to build its strategic reserves. China’s imports of copper hit an
all-time record for a fifth straight month in June, reaching 379,000-tons. Nickel imports, used to make stainless steel, also
hit a record of 41,008 tons, up from 25,032 tons in May, and imports of aluminum hit 267,861 tons, helping to support the
Baltic Dry Index.

6 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

News that China’s economy rebounded to a +7.9% annualized growth rate in Q’2, up from +6.1% in the first quarter, got the
attention of Aussie traders, who also closely track the direction of the Shanghai red-chip index. The Australian dollar
advanced above 80-US-cents as commodities buoyed by a booming Chinese stock market. China’s central bank is inflating
its M2 money supply at a 28.5% annualized clip, in a brazen effort to re-inflate its stock market, and generate a paper trail
of wealth.

Interest rate differentials also play a big part in influencing the Aussie dollar. The premium that traders receive from
two-year Australian government debt over US Treasuries of the same maturity has widened to +310-basis points, the most
since October. The Aussie dollar is likely to maintain its wide interest rate advantage, after Fed chief Ben “Bubbles”
Bernanke said on July 21st, “The Fed believes that a highly accommodative stance of monetary policy will be appropriate for
an extended period,” telegraphing a zero-percent fed funds rate into 2010.

The Fed cut the fed funds rate to near zero and pumped $1.8-trillion into the banking system, which could ignite faster
inflation once the economic recovery gains traction. “We will not allow the broad measures of money circulating in the
economy to rise at a rapid enough rate that would eventually cause inflation,” Bernanke vowed. But history shows that the
Bernanke- Greenspan Fed will continue to keep interest rates pegged at ultra-low levels until huge bubbles have expanded
in the commodity and stock markets. As in China, the US-central bank is also engaging in a clandestine attempt at jump
starting the economy, by inflating housing and stock market values through explosive increases in the money supply.

The Reserve Bank of Australia (RBA) has proven itself a very astute currency trader. Having bought A$3.2-billion of Aussie
dollars near 60-US-cents last October, the RBA booked a solid profit, after selling A$1.94-billion on the spot foreign
exchange market near 80-cents during June, the largest monthly sale on record going back to 1995, and followed a hefty
A$1.4-billion of net sales in May. The RBA’s clandestine activities are fueling speculation that it’s leaning against a further
rise in the Aussie dollar’s exchange rate above 80-cents. Such interventions however, are usually smoothing operations, and
can’t change a trend.

This article is just the Tip-of-the-Iceberg of what’s available in the Global Money Trends newsletter, for insightful
analysis and predictions of the future direction of (1) top stock markets around the world, (2) Commodities such as crude
oil, copper, gold, silver, steel, and soybeans (3) Foreign currencies, including exotics, (4) Libor interest rates and global
bond markets (5) Central banker "Jawboning" and Intervention techniques that move markets.

By Gary Dorsch,
Editor, Global Money Trends newsletter
http://www.sirchartsalot.com

7 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

GMT filters important news and information into (1) bullet-point, easy to understand analysis, (2) featuring "Inter-Market
Technical Analysis" that visually displays the dynamic inter-relationships between foreign currencies, commodities, interest
rates and the stock markets from a dozen key countries around the world. Also included are (3) charts of key economic
statistics of foreign countries that move markets.

Subscribers can also listen to bi-weekly Audio Broadcasts, with the latest news on global markets, and view our updated
model portfolio 2008. To order a subscription to Global Money Trends, click on the hyperlink below,
http://www.sirchartsalot.com/newsletters.php or call toll free to order, Sunday thru Thursday, 8 am to 9 pm EST, and on
Friday 8 am to 5 pm, at 866-553-1007. Outside the call 561-367-1007.

Mr Dorsch worked on the trading floor of the Chicago Mercantile Exchange for nine years as the chief Financial Futures
Analyst for three clearing firms, Oppenheimer Rouse Futures Inc, GH Miller and Company, and a commodity fund at the
LNS Financial Group.
As a transactional broker for Charles Schwab's Global Investment Services department, Mr Dorsch handled thousands of
customer trades in 45 stock exchanges around the world, including Australia, Canada, Japan, Hong Kong, the Euro zone,
London, Toronto, South Africa, Mexico, and New Zealand, and Canadian oil trusts, ADR's and Exchange Traded Funds.

He wrote a weekly newsletter from 2000 thru September 2005 called, "Foreign Currency Trends" for Charles Schwab's
Global Investment department, featuring inter-market technical analysis, to understand the dynamic inter-relationships
between the foreign exchange, global bond and stock markets, and key industrial commodities.

Copyright © 2005-2009 SirChartsAlot, Inc. All rights reserved.

Disclaimer: SirChartsAlot.com's analysis and insights are based upon data gathered by it from various sources believed to
be reliable, complete and accurate. However, no guarantee is made by SirChartsAlot.com as to the reliability, completeness
and accuracy of the data so analyzed. SirChartsAlot.com is in the business of gathering information, analyzing it and
disseminating the analysis for informational and educational purposes only. SirChartsAlot.com attempts to analyze trends,
not make recommendations. All statements and expressions are the opinion of SirChartsAlot.com and are not meant to be
investment advice or solicitation or recommendation to establish market positions. Our opinions are subject to change
without notice. SirChartsAlot.com strongly advises readers to conduct thorough research relevant to decisions and verify
facts from various independent sources.

Gary Dorsch Archive

© 2005-2011 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis &
Forecasting online publication.

Online Currency Trading Is the Dollar Rising or Falling? Profit Both W

EOD Stock Market Data 100+ World Exchanges Update Popular Char
5 Technical Analysis Vids Online 5-Day Free Course Uses Video To T

Comments

Post Comment (Moderated)

Subject:
Name:
E-mail address (will not be published):

Comment:
Submit Comment
(Note Commenting Issue: If after Submitting you are returned to the Main Index Page then due to site caching your
comment has not been accepted. Solution - Click the Browser Back Button to the article page and Press PAGE REFRESH
(you should see the message "You are not authorized to carry out this operation") Now re-enter your comment (ignoring
the notice) - If all's well then you will remain on the article page after submitting, a moderator will check and authorise the

8 of 9 3/16/2011 1:23 AM
Analyzing the Australian Dollar, Up, Down, and Under :: The Market O... http://www.marketoracle.co.uk/Article12225.html

comment. Alternatively EMAIL to comments @ marketoracle.co.uk , quoting the article number.

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2011 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by
our editorial team and all comments posted. Any and all information provided within the web-site, is for general
information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information
provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are
also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give
investment advice and our comments are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or
any other financial instrument at any time. We recommend that independent professional advice is obtained before you
make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we
promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that
endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of
those products.
Terms of Use | Privacy Policy

9 of 9 3/16/2011 1:23 AM