Aussie Dollar Dive Part I

We recently spoke with a top reporter for one of Australia’s largest daily newspapers (Sun-Herald). After reading this exchange you will come away with a clearer understanding of the wrong way to view to the market. The reporter is asking the questions:

Q. I want to ask what’s wrong with our dollar and why it continues to fall when our economy is sound?
A. There are two problems with your dollar. First, better investments elsewhere are causing your dollar to sink as currency leaves your country. To some degree this is caused by Australians who want better returns in other markets outside of Australia. Second, the Aussie dollar has become a great currency to short. Traders make money as it sinks downward.

Q. Besides after we put on a great Olympics, why don’t the money men want our currency?
A. The money men don’t want your currency because its value against other currencies is sinking. Trend is straight down. No one wants to own a financial instrument that is trending down, including the Aussie dollar. Think about it. How can you make money by owning the Aussie dollar when it is dropping like a rock. One of the ways that the money men are making money off the Aussie dollar is by shorting it and making money as the price goes steadily downward.

Q. Can you give me some idea of how the US sees our dollar going from now on?
A. Who knows? Seriously, I am not being flippant. No one knows. Technical traders analyze price action, and the price is down. They will ride the Aussie dollar down as long as it will go.

Q. Will it continue falling through 50c? When might it climb back? Or is this sort of level around for good?
A. Who knows? Trend followers just follow the trend till it ends. They don’t predict. All they do is look at what is, not what might be.

Q. Are the traders considering how sound the Australian economy is to decide whether to sell it down or not?
A. No. Not at all. Who cares if the economy is supposedly sound? What measure are you using? The only fact about the economy that is truly known is that the value of the currency is down. So traders short the currency.

Q. The Australian Treasurer Peter Costello is flying to the US this weekend to try and talk up our dollar emphasizing how strong and stable our economy is. Will this have any effect?
A. No. Technical traders are not interested in hearing what he has to say. In the press US traders will pay lip service to the significance of his visit. However, since the models they use say the trend is down, they will continue trading short.

See the dramatic chart drop here.

This reporter did end up spinning a story in which currency speculators are characterized as evil and bad people. As usual, the currency speculators are the ones to blame.

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