As promised last week, we’re taking a look at the AUD this Friday. As a matter of fact I’m on a bit of a kangaroo hop from Australia, to New Zealand, to the USA over the next few weeks - so in the next few articles we’ll put each currency in turn under the spotlight.

Firstly though, a pop quiz- just for fun!

Question 1: What do the AUD, the Brazilian real, the Indonesian rupiah and the Russian rouble all have in common?

Answer. They are all currencies linked to commodity-rich nations that are set to benefit from emerging nations’ industrialisation.

Question 2: Which of these countries do you have confidence in their rule of law?

Answer. Australia (give or take a grab at a mining tax and being stiffed a carbon tax!!)

The AUD is currently trading at 29 year highs having gained about 40% on the USD over the last decade. Much of this is due to the Aussie’s link to commodity prices and hence the link to the China growth story.

In the past, the AUD has usually suffered whenever the markets get frightened as traders sell AUD and head back to “safe haven” currencies. However there appears to be a change in the winds. As I’ve spoken of before in this column it’s debateable that the USD deserves its global reserve currency status any more. That is causing traders to look to other currencies such as the AUD for new safe haven status. This has been tested in the last few weeks whereby the AUD held up well through the sovereign euro wobbles and China’s GDP figures.

As always though – I like to give you two sides to the strategy coin – Professor Nouriel Roubini (aka Dr Doom) was quoted the other day as saying “the strength of the AUD could be slightly overvalued but is likely to be sustained by high commodity prices. I wouldn’t call it a safe haven currency. Like Russia’s rouble, it’s linked closely to commodity prices.”

Tough love, I say. After all, who would want to be compared to a Russian rouble!!

By Friday Fundamentalist, Published on 21st of July 2011
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