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The Case Against the Australian Dollar
April 15
th
, 2010
Damien Cleusix
Clue6 April 15
th
, 2010The Case Against the Australian
amencue.com
1
Executive Summary
“Jusqu’icitout vabien, jusqu’icitout vabien… l’importantc’estpas la chute… c’estl’atterissage.”
(laHaine,M.Kassovitz)
TheAustralianDollarisbyfarthe
most overvalued currency in the G20.
TheAustralianeconomyisrelativelysmallandhashadacurrentaccountdeficitduringmostofthepast50years.Ithasahighoperatingandfinancialleveragewith
70% of the market being either commodity or financial related (30% and 40%
.CommoditypricesarehighlydependentonthecontinuationofthenascentChinesecreditbubble.Thefinancialartoftheeuationfeelslikeanhouseofcards.Assetshaverisensubstantiallyinthepast20yearsandhavefosteredmorerisktakingandlesssavings.Theirovervaluationisnowsobigthatattractionshouldsoonexertitsinfluenceagain.
Houses in particular might be up to 50% above fair value.
Giventhehighleverageofbothhouseholdsandfinancialentitiesthiswillhaveverynastyconsequences.Whilethepublicsectorisingoodshape,thiswon’tlastlongwhenthedownturnstartsinearnestandtheprivatesectorwillhavetobebailed-out.
Speculation and carry-traders are betting heavily on a continuation of the AUD uptrend
whilethereareheavynon-residentAUDbondsholdingstomatureinthenear-term.
The trend has deteriorated but should be anal zed carefull
toavoidlosinitsshirtinaossiblebutnotrobablemove
Clue6 April 15
th
, 2010The Case Against the Australian
towardparityagainsttheUSD.
2
AUD:
Valuation
Chart 1AUD/USD Fair Value Model
TheAUD is
,byfar,
the most overvalued developed markets currency
witha30%deviationfromfairvalue.
Source: IMF, OECD, Clue6
Valuationinitselfisnotveryinformativeexceptwhenthedeviationbecomesasimportantastoday.
In the current configuration, one should act on any technical deterioration and lighten when sentiment is too bullish and the cross is nearingthe top of its rising short-term channel.
Clue6 April 15
th
, 2010The Case Against the Australian
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