(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
The Australian dollar has fallen so far, so fast over the past month that I failed to notice a major change in tone from the Reserve Bank of Australia (RBA) on monetary policy until now. Indeed, since the Reserve Bank of Australia indicated that “…an improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary,” the Aussie has bounced back about 2.5% versus the U.S. dollar. Currency markets have apparently been anticipating this change in tone in the midst of a sharp decline in commodity prices and economic prospects that has taken the Aussie down 13% relative to the U.S. dollar in just two months. Those previous levels were all-time highs for the Aussie.
Many countries wish they had Australia’s “problems.” As noted from the RBA:
{snip}
The drop in Australia’s currency is consistent with the “commodity crash playbook.” I am looking to add to current holdings in Australia’s currency as a longer-term play on the increasing importance of commodity-laden economies (and the secular decline in the U.S. dollar). I have already bought back into EWA, the iShares MSCI Australia Index, with a first tranche of shares.
Here are longer-term monthly charts that demonstrate the overall strength of the Aussie and EWA:
Source: dailyfx.com charts
Source: freestockcharts.com
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: long FXA and long the Aussie versus the pound and yen.