Why America’s Problems Could be Bad News for the Aussie Dollar
“California unemployment edges below 12%”
In a moment, we’ll explain why that headline from the Los Angeles Times points to more trouble for the U.S. economy, but good news for the U.S. dollar…
With an unemployment number of 12%, you’d think most folks would be happy to take any job they can.
But not the four picketers we ran into outside our hotel in San Francisco.
They weren’t the only ones protesting. Two former employees of CVS Pharmacy picketed the store on Market Street.
And further along two picketers handed out leaflets outside the entrance to Bristol Farms grocery store at Westfield’s San Francisco Centre.
A downward spiral
These events – while small – help confirm our view of the U.S. economy: it’s on a downward spiral.
Don’t get us wrong. We’re a fan of the U.S.A. We’re sure throughout history there’s no better example of the downtrodden being granted the liberty and opportunity to succeed.
That’s what happens when individuals are free to make their own decisions and mistakes.
The only problem is the country is suffocating from Progressives and statists.
Those who want the government to do more, not less.
They want more money going to government. And less in the pockets of individuals and private enterprise.
That’s what makes us sceptical about the so-called U.S. economic recovery. We don’t believe trillion dollar debts and deficits add up to a recovering economy.
In that case, you’d expect us to sell the U.S. dollar.
Wrong.
In fact, we believe you should do the opposite…
Why you should buy the U.S. dollar
Like it or not, the U.S. dollar is still the global reserve currency.
And with the Euro and Japanese Yen on the nose right now, we’re not convinced investors will abandon the Greenback yet.
Don’t forget, the U.S. economy still accounts for one-quarter of global Gross Domestic Product (GDP). That’s on a par with U.S. economic share in the 1980s and 1990s.
That all suggests when the proverbial hits the fan again, you could see another knee-jerk rally of U.S. dollar buying. It’s hard to see big investors breaking old habits.
Not because America has the best economy. But simply because investors are used to buying the dollar. Despite all that’s happened, most investors still see the U.S. dollar as a safe investment.
Emerging nation currencies such as China and Brazil still rely on the U.S.
And when markets take another hit, we’re not convinced big investors in Europe will hold most of their cash in Chinese Yuan or Brazilian Reals.
We’re not the only ones to think this.
The fact the Aussie dollar has failed to go tells you investors are cautious about further gains. That could mean the Aussie’s glory run is over.
And the same goes for other currencies. Here’s the U.S. dollar index chart:
The U.S. dollar has bounced after plunging from 88 to 73 in less than a year… even if it’s just a small bounce.
Make no mistake, it could have a big impact on your investments if the Aussie dollar drops and the U.S. dollar gains.
While it’s not something we’ve addressed in Australian Small-Cap Investigator, our old pal, Australian Wealth Gameplan editor, Dan Denning has.
And that makes sense to us.
The fact is, Aussie investors have a lot of money invested in commodities stocks. Commodity prices have a big impact on the value of the Aussie dollar. So any swift and long-term decline in industrial commodity prices – iron ore, copper, etc. – spells trouble for the Aussie dollar and your investments.
We can’t tell you exactly how Dan has suggested investors reduce their Aussie dollar exposure – that’s for subscribers only.
But we can say that with the Aussie dollar near a record high, it makes sense to manage your exposure to the commodity-focused Aussie.
Cheers.
Kris Sayce
Money Morning Australia
P.S. The Aussie dollar is still trading near a multi-decade high. The Aussie dollar is one of the most popularly traded currencies on the market, due to the commodities exposure. That means it’s possible the Aussie dollar is in the middle of a huge currency price bubble. And when it re-values lower it will have a big impact on Aussie share prices. In our opinion, that’s something you should prepare for. To check out what Dan Denning has told his Australian Wealth Gameplan readers, click here…
Why America’s Problems Could be Bad News for the Aussie Dollar
