Tuesday, April 5, 2011

AUDUSD - The Risk is on the Downside

This image is borrowed from IG Markets.

The AUD continues its remarkable run against the USD and seems unstoppable. There is a lot of good news for the AUD, relatively high interest rates, low inflation, a strong economy and near full employment. What will stop the AUD and what will see it repeat the precipitous plunge in mid-2008?

It's pretty simple and it all involves China.
1) A collapse in commodity prices
2) Popping of the Chinese Property Bubble
3) A slow down in the Chinese economy
4) Anything else really bad happening in China...

The fall from grace won't be a slow steady progression like the recent rise has been, it will be a drop much like the last one as all the carry traders unwind their positions and all the AUD bulls back out and run back to the good old USD.