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Sunday, 18 October 2009

Will the AUD be worth more than the USD?

Not so long ago the AUD had gone from around 50c US to close to parity with the USD on the back of the commodity boom turning into a commodity bubble. The GFC pricked that bubble and last year the AUD had dropped back into it's traditional 70c-80c US range. Now the AUD is back over 90c US and many pundits are predicting the Aussie dollar will soon reach parity with the USD. This time around I think there is a good chance the AUD will soon be worth more than the USD and it could probably stay that way indefinitely. The USD is under pressure due to the US Federal deficit reaching massive levels (around US$4,500 per capita in the past year, and likely to accrue to over US$25,000 per capita over the coming decade), which could well lead to an inflation problem in the US once the economic recovery gets underway. On the other side of the equation, commodity prices are likely to remain high as the global economy recovers and demand again starts to pick up while supply constraints are still evident for many commodities (Oil isn't the only commodity likely to see production peak in the next decade or two).

I've had a couple of attempts of making some money from these expected long term trends, but going long with AUDUSD forex and the Crude Oil price trading CFDs on my City Index and CMC Markets accounts didn't work out due to short term fluctuations and trend reversals exceeding my expectations. Although I had opened an oil position at around USD51 and bought the AUD around 68c US earlier this year, both positions were closed out when temporary dips saw my margins evaporate. My trade execution and risk management still needs improving.

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