From the September 2013 issue of Futures Magazine • Subscribe!

Dollar days coming as Fed prepares exit


A permanent concern in all markets and market sectors is China, and slow growth in China has been blamed for the extreme weakness in the Aussie dollar. 

“I have been of the opinion that the Chinese economy is slowing because of what happened in the Eurozone. Yes, there is some domestic slowdown in China but it appears the Chinese authorities will step in to support growth even if it is slipping to a historically low level,” Wilkinson says. 

Dowd says, “Australia is going to be dependent on how things go in China but when you look at that chart it looks a little oversold right here.  If we can trade above 95, the market gets back on a flat position.”

Wilkinson points out that China has emerged and may see lower GDP numbers as a result. “As the Eurozone news becomes less bad, you will definitely see a pick-up in Chinese activity. Whether that is sufficiently strong to drive a rally in the Aussie dollar is [debatable].”

Also debatable is whether weakness in the Aussie dollar can be blamed on China or if the reason is closer to home. 

Rotman says central bank statements, not Chinese weakness, is the reason for the fall. “It is because Australian central bank chief Glenn Stevens blatantly said ‘we still think our currency is too high.’ You can’t get much more obvious than that. As soon as he said that the Aussie went from 91 to 89.”

Whether you blame it on China or Stevens, it has caused a split in the once dependable correlation in the commodity currencies (see “No longer best buddies,” below).


Opinions are varied, and of course data-dependent. The one wildcard mentioned by most analysts is a significant change in the expectations of a tapering, but more importantly the fundamental reasons for such a change. Dowd sums it up, “The real wildcard would be if the [United States] turns down again. If we saw a real deterioration in the employment numbers or the housing market in the [United States], that would be a game changer.”

The U.S. dollar appears strong because the U.S. economy is preparing to begin weaning itself from extraordinary accommodation while the rest of the world is at the trough. If the numbers don’t justify it, things could change.

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