AUD set for weaker outlook

Australia has had a strong recover over the last 6 months, rising from 62c to 82c to the USD. In the next 6 months I would not be surprised to see the currency come off. There are of course some positives:

1. Some recovery in commodity prices
2. Government stimulated economic activity
3. Residual mining & energy investment
4. Continued weakness in property

The negatives are:

1. Decline in bulk commodity prices - priced annually based on Apr price fixtures for iron ore

2. Rising public deficit

For these reasons I believe the Australian dollar will pull back to 73c, but probably not before rising to 85c. Clearly the justification for a stronger AUD will be a weaker than expected USD. I don't expect this. I believe the US is looking at higher interest rates to boost savings, and higher energy taxes. I believe global warming will provide the justification for a carbon tax, but in this national emergency the proceeds will be spent on anything but the environment. In fact, the whole idea of artificially stimulating economic activity is contrary to stopping global warming. So I am expecting some Clinton-like austerity measures which will be strong on US interest rates, so a strong USD. So I'm expecting a 73c medium term target for AUD-USD.

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Andrew Sheldon www.sheldonthinks.com

EUR to reach 1.45

The EUR is probably likely to go higher against the USD, but I would wait for confirmation of that trend because there is still more scope on the downside. I am however expecting the EUR to reach 1.45 in the next month.

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Andrew Sheldon www.sheldonthinks.com

USD-JPY looks like falling to 86.50 yen

The USD technically looks like weakening. The head & shoulders pattern is indicated. There will be two points you can look for - a breach of the uptrend, and a confirming break of the 95.75 support level.
You might have expected a Clinton-like response from Obama on policy. But given the capacity of higher interest rates to undermine the housing sector, you can expect taxes on energy and the wealthy.
There is a meeting of countries in Copenhagen in Oct'09. I think that they will conclude that an agreement on Climate Change is too hard, so why don't we just tax energy heavily, reduce our reliance on the Middle East, raise a lot of money from discretionary spenders, give food vouchers to the poor, and just think deep thoughts about climate change. It was always only a facade to bring in a more comprehensive energy tax. Goerge was against it since it would have undermined his share price for Halliburton, but Obama fear not for the environment. That ought to raise a lot of tax as well, and I think America just might see a 'green is good' religious conversion as well. I am expecting they will annoint a 'green god' in the likeness of Obama.

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Andrew Sheldon www.sheldonthinks.com

The Yen set to strength against USD

After the recent rally in the USD I would be looking for some weakness. The market is due for some bad news. My bet is that the bad news over the next few months is going to be the 2nd stage of the property crisis. Stage 1 was the sub-prime mess, and next we are about to move into a succession of ARM-reset initiated foreclosures. This will kill any confidence inspired by the recent rally in equity markets. I would also suggest that it will also likely prompt the Fed to bail the US government out of another truck load of debt.
Anyway, this chart structure is telling me that there is considerable (6-point) resistance to a stronger USD, so on this occasion I sold USD-JPY. The target price is around 94.60.

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Andrew Sheldon www.sheldonthinks.com

AUD and NZD appear consolidating

The Australian (AUD) and New Zealand dollars (NZD) have recovered against the USD from their lows over the last week. There is more upside, but I would not expect it to last. There is really no basis for celebration in the coming months, so I would expect a series of short term rallies. The idea that low interest rates can stimulate the NZ and Australian economies is really false advertising. Since when is the answer to excess debt more debt. We will instead see more printing money, but give it time. In the meantime, its denial.
A stronger outlook for these economies can be expected when we see a recovery in food prices. Basically the problem with these two countries is that we need to see a lot of deleveraging. So we are not going to see a lot of spending by the private sector. Expect government public works. The farm sectors will fare the best, but they are just a smart part of the economy, but they will help the external account for both economies.
The NZD and AUD are likely to consolidate for a while. The John Keys Conservative government is saying the right things so I would expect foreign markets to be supportive of his government.

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Andrew Sheldon www.sheldonthinks.com

NZD outlook presents good investment prospects

The NZD is languishing at new lows of 49.5c to the USD. The question is - will it fall further to 40c, the hostoric low last reached in 2003 if I am not mistaken. At that time NZ was battling a bad current account deficit, much like today, and like today it was contending with a low commodity price outlook. In this context, one might expect the NZD to fall to 40c. The problem I have with this scenario is the weak outlook for the US economy. I am thinking we can expect a lot of monetary inflation in the US, but we might also expect some taxes on the rich and an energy tax. We need to remember that any slowdown is going to demand the government to raise taxes since Bush was engaged in tax reductions, now we are looking at tax increases.

The weak NZD is going to be a saviour for the NZ economy, and the prospect of NZ expatriates returning from abroad cashed up from offshore earnings is going to offer a stimulus of its own. I suspect a few Europeans and Americans might also be considering retirement in NZ, and some families will be changing their priorities, and deciding emigrating to NZ means more times for the kids. These are the dynamics which move a small nation like NZ. Falling NZ interest rates however suggest that we might just see the NZD move to 40c. As per normal, we should watch the market for some direction. Certainly the falls in equities are reason to think the NZD is not going to be a growth currency for some time. But perhaps you might consider buying property in NZ at this time. Economic malaise creates the best possible setting for contrarian investments. You can buy a house in NZ for as little as $NZ68,000 (USD35,000). This is a natural move for retirees, intellectuals, programmers and international explorers. In 5 years you will be able to sell any property investment at a higher exchange rate. More info here. Chart updates from Yahoo Finance.

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Andrew Sheldon www.sheldonthinks.com

AUD and NZD range trading at best

The AUD and NZD are likely to range trade for the next month, as the focus is on the EUR trade. There is still some play in the Yen, as it falls to the Y83-85 on weaker economic news out of the USA. We are going to see a weaker USD, and that I don't see adding either weakness or strength to the AUD or NZD. I would nevertheless expect a volatile AUD trading between 58c and 70c.

The NZD is likely to trade between 50c and 60c. I don't see any reason for a fall at this point to its historical level of 40c in the short term, though I can see that as a possibility in the longer term. The John Keys government is shaping up as a disappointment. A swear the guy is the illegitimate child of John Howard the way he is running policy at the moment. He must have been stillborn for the last 2 decades because he has learnt nothing, and he is fully against the trend. Counter-cyclical or just stupid? You be the judge.

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Andrew Sheldon www.sheldonthinks.com

The USD set to plummet!

The USD is set to plummet against a number of currencies. You might be thus wondering where to place your money. Against the gain currencies I would suggest the EURO offers the better opportunity. Some months ago I forecast the Yen falling to Y85. As you can see that move is almost complete, with the USD currently trading around Y90. At the time I attracted considerable criticism for this forecast. I would however expect the EUR-USD to offer far better trading however in the next 6 months.
The question is - Can we expect the USD to break Y83? I think if this were to occur we could be looking at the end of the USD as the international base currency. The question is - what would replace it? Clearly its not going to be the dysfunctional EUR, the distrusted Yuan, the disenfranchised Yen, and what of the worthless USD? Well, the implication is clear, its the USD or its a new global currency. Is it possible that the US debt profligacy was nothing more than a political statement by the US government. Was the US government thumbing its noses at mercantilist Japan and China and saying, SCREW YOU. By all means hold our USD debts as we are going to dilute the value of them. This is interesting times because we are looking at a global emergency, which can provide the justification for a strong USD (higher interest rates) or a new international currency. I would expect Obama to support higher interest rates in the spirit of former President Clinton. But then maybe he wants to distinguish himself by taken the road rarely taken. The implications for gold and the USD are clear.

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Andrew Sheldon www.sheldonthinks.com

NZD-USD set for rally to 57c

The NZD has fallen to the USD50c support as expected. The current does however remain in a downtrend. There is no hope of a reprieve from commodity prices in the short term, but it is evident from the short term chart that there is scope for a rally to 57c before the currency resumes its downtrend (and short term traders can take profits). If you are buying NZ property, which can be very cheap outside the cities, then I would suggest you take the opportunity to exchange currency on this future weakness. NZ has one of the most flexible foreign investment regulations in the world. There are 3 ways you can make money from property:

1. Capital growth - through market price fluctuations
2. Rental income - long term or holiday rentals, perhaps whilst using it in the off-season
3. Foreign exchange exposure - by trading volatile movements in the NZD
4. Value-add through improvements - whether DIY or outsourced
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Andrew Sheldon www.sheldonthinks.com