The outlook for the AUD positive

The Australian dollar is confronting several competing forces at the moment. In the short term there is the uncertainty of an unknown election result, even if it appears as if the Coalition will have the power in the House of Representatives, given that most of the Independent MPs are alligned to Liberal-National values.

The trading in the AUD suggests that the currency is close to breaking out to a new high, or set to fall to the old 80c support.

I am confident that once the election uncertainty has cleared we are going to see a stronger AUD. The reasons will be:

1. An end to the Emissions Trading Scheme

2. An end to the Mining Tax

3. Strong mineral export revenues

4. Strong business investment by the Chinese and Indians in coal & iron ore

The economy is currently bumping along with capital inflows of $3.5-4 billion per month. They are going to keep the AUD strong for the foreseeable future. The USD does not convey such strength, but the Chinese economy does. I see no reason to expect a slump in China, which is still benefiting from a great deal of stimulus. I can see upside for the AUD to as high as 98.38c, the previous high. I cannot see that support being broken in the medium term. It is probable that Australia will witness a recovery in domestic spending by that point. i.e. When Australians know they are on a good thing they go out with their credit cards in hand.

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Andrew Sheldon www.sheldonthinks.com