Short the Aussie

Australian vs USD

Australian vs USD

Triple Top: “W” formation, conclusive test being a break through the valley floor after the 3rd top. Should see a big drop after

Australian Dollar vs USD

From a "major trend"/Dow Theory point of view, the next major trend that looks most likely to occur would be a downtrend because last "recovery" didn't surpass the previous high. Most likely to see resistance through 0.82-0.75

Australian vs Yen

Looking at the daily graph, a series of price fluctuations can be seen after late May. Each new price smaller than the first, which makes a Symmetrical Triangle or a Coil. At the end of a Coil, the following action is either a spike upwards or downwards…….

Australian vs Yen

After the credit crisis ended in late ’09 and early ’10, there can be seen a “Rounding Top”. This gradual rise in the value of AUD to about 81.50 can potentially be seen as a temporary peak. Following the Rounding Top pattern, a gradual decrease is usually seen.

Looking at the bigger picture, it looks like the smaller Coil pointed out in the previous slide looks to be a part of a Rounding Top, which means that the questioned direction of the Coil might be downward.

Australian vs Yen

The general trend of the AUD vs JPY would predict that the next few years would have a general downtrend. With the credit crisis, a severe drop took place. Though a rebound has taken place as seen by the black arrow, I think downtrend will still occur nonetheless.

Copper vs AUD

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Copper AUD

Copper on the rise?

• As seen in the previous slide, copper and the Aussie have a strong positive correlation

• According to Barclays Capital, copper faces a, “deepening supply crunch”, which would cause record prices in the next two years

• However, some analysts have speculated about the potential of a “head and shoulders” pattern that might be forming

• If this were the case obviously prices would plummet, possibly causing the AUD to drop

Dow Jones vs AUD

Stocks down, AUD down

• As seen from the two graphs, the DJI and Aussie have a strong correlation as of the past year.

• The future for America’s economy is very bleak. As Raoul Pal puts it, we’re waiting for a, “future recession in an ongoing depression”**.

• Obviously, in a depressed economy, the Dow Jones will go down.

• With a possible recession, tax increases, and an ever increasing debt, the Dow Jones should decrease, as should the Aussie.

**Global Macro Investor, Issue No. 66, Aug. 2010 Published by Raoul Pal

Baltic Dry Index

• As Pal also said, the index has, “been collapsing at an alarming rate.”**

• Australia is such a huge export driven country that with the contraction of the Baltic Index, global growth and trade will be decreasing, and in turn, will hurt the AUD.

**Global Macro Investor, Issue No. 66, Aug. 2010 Published by Raoul Pal

Aussie’s Export customers

Country Value (millions)Percent Change last 2

mos.

China 5254 +7

Japan 3967 +5

EU 2292 -14

Korea 1868 +4

UK 1336 -19

Source: Bloomberg

Future Trade Predictions

• Though trade has increased with China this year as of late, analysts have seen a slowdown in consumer and industrial activity.**

• According to Citi, China’s forecasted GDP growth is expected to decrease from 9.5 to 8.8 from 2010 to 2011**

• With China being Australia’s number one customer of exports, a slowdown in China’s imports and growth could put some downward pressure on the AUD

• As seen in the previous slide, 3 of the top 5 countries have had an increase in imports from Australia

• Australia is currently running a export trade surplus, this puts pressure on inflation***

**Citi: Global Economic Outlook and Strategy

***Bloomberg

Australian 10 yr bond

Australian 10 yr bond

• Australian rates have been kept around 4-5%

• As seen in the chart rates have been on a downward trend

• Should stay there unless inflation gets out of control

• Analysts have seen economic growth moderately slow down in the past few months due to rise in unemployment rate, lower than expected company profits, and an increase in housing prices

When will this happen?• There has been some conflicting data on whether the AUD is appreciating or depreciating

• AUD has been very volatile over the past few months

• “…movements in AUD in recent times have been heavily influenced byoverall risk appetite more perhaps than local fundamentals”**

• With gloomy global outlook predictions, its seems that many people may take the safe “risk off” approach which may decrease the value of the AUD

• However, with the AUD’s current strong economy, people may have faith and buy Aussie

• If trade goes down, I think people will start to sell the Aussie

**Citi: Global Economic Outlook and Strategy

When will this happen?

•As seen by the boxes, historically the AUD has seen resistance and support around the 0.72-0.80 range

•Should the AUD break through that, should come way down