Episode 31

Understanding foreign currency

Welcome to Finance and Fury. Before I start I want to say a massive ‘Thank you’ to our listeners. We cracked 150k downloads in the first 6 months which is phenomenal. Also, thank you to everyone who has taken up the course – I want to extend the promotion to another 50 people as a Thank You for everyone’s ongoing support. Just enter the code ‘faf01’ for 50% off at the checkout.

Here’s a link to the course: https://financeandfury.com.au/learn-finance/ 

Today we’re talking about the AUD plummeting to a two-and-a-half year low – 70.79 US cents (approx. at the time I’m recording this episode)

  1. The Aussie dollar could be heading to the “mid to high 60s” by next year, experts say.
  2. The dollar is now about 13 per cent below January’s three-year high of 81.36 US cents.

Is it USD rising or AUD crashing?

  1. It all depends on what the domestic country is doing in relation to the foreign country of comparison
  2. In comparing the AUD to the USD it is the rising USD more so than anything
  3. The AUD is going well in relation to the GBP, for example.

The Australian market

  1. There is a lack of competition between AU and the US
  2. Potentially soft retail sales data due for release could be “another possible nail in the coffin”
  3. There is a decreased demand for AUD
  4. “The principal reason it’s falling is because the yield spread, basically the difference between interest rates in the US and Australia, has turned very negative,” MacroBusiness Fund chief strategist David Llewellyn-Smith said.
    • The US Federal Reserve last month raised rates – third time this year – now at 2.25 per cent.
    • The Fed has flagged another hike in December, three more next year and one in 2020.
    • RBA cash rate 1.5% since Aug 2016 – No rise since Nov 2010.
    • With the fears of property prices declining – not likely to get a rate rise for a while

Factors affecting currency trade

Carry Trade

  1. Global markets work through borrowing in low interest rate areas and invest in high interest rate areas. It’s called the carry trade.
  2. It is said that the yield spread on 10-year US and Australian government bonds is now “at the most negative it’s been since 1983”.
  3. A lot of people want to sell the Australian dollar at the moment

Terms of Trade

  1. The ratio of import to export prices, which in Australia’s case is basically all about coal and iron ore exports
  2. We sell so much of both coal and iron ore. There is normally a very strong relationship — high commodity prices means a high Aussie dollar. That’s not the case at the moment.
  3. Iron ore and coal prices, while nowhere near their levels during the peak of the China boom, are reasonably high.
    • The AUD would be up around 85 cents based on the terms of trade

Economic & Tariff wars

  1. The growing economic war between the US and China.
  2. “As we speak, Beijing is employing a whole-of-government approach, using political, economic, and military tools, as well as propaganda, to advance its influence and benefit its interests in the United States,” Mr Pence said.
  3. Chinese spies hacked America’s technology supply chain by sneaking compromised chips into companies including Amazon, Apple and big Government agencies
  4. It’s about power and strategic ascendancy and hegemony.
  5. All that is bad news for Australia — and in this case, the Australian dollar.
  6. The worse it gets, the more sentiment sours about the Australian dollar. We’re a little country caught in between two behemoths.

What the current situation is good for

  • Cheap to buy Australian goods if you’re overseas

What it is bad for

  • Australians buying things internationally

The RBA, for its part, is completely boxed in – are totally unable to raise rates

  • Forecasting currency is a mug’s game. There are an impossible number of variables. But those are the primary drivers.

 

Protecting yourself from currency fluctuations – Investments

  1. Hedged vs Unhedged
  2. Buying international shares – Hedged at not much risk of currency risks, unhedged is good when AUD is falling
  3. Unhedged has been good over the last few years as the AUD has dropped
  4. Within an investment portfolio diversify and get both

Where to invest in preparation for the next financial collapse?

Welcome to Finance and Fury Today – Want to start looking at what would likely survive another financial correction or worse, collapse Been thinking a lot recently about the structure of the modern economy – This episode is probably more like a FF ep, but this topic...

Say What Wednesday: The relationship between shares and property in Australia

Say What Wednesday The relationship between shares and property in Australia Welcome to Finance and Fury’s ‘Say What Wednesday’. Today’s question is from John. John asks, “What is the relationship (if any) between shares and property in Australia? Should we expect the...

Say What Wednesday: The best way to save for your children

Welcome to Finance & Fury, the 'Say What Wednesday' edition, today we have a question from Mila: Question We are expecting our first child very very soon, so what is the best way to invest money for your children, apart from the obvious solution of having a...

Say What Wednesday: The ups and downs of Bitcoin – currency, investment opportunity, both… or neither?

Say What Wednesday The ups and downs of Bitcoin - currency, investment opportunity, both... or neither? Today’s question comes from Richie, who asks, “Have you been following the Bitcoin ETF at all? If so, are you able to do an episode on this and if it is worth...

Furious Fridays: Wolves in Sheep’s Clothing: How socialism is threatening our amazing country

Furious Friday Wolves in Sheep's Clothing: How socialism is threatening our amazing country Welcome to Finance & Fury, the Furious Friday edition. To start this episode, I want to say just how incredibly lucky we are to be born in Australia during this time, even...

How do you identify a scam, before ASIC or the regulators do it for you?

Welcome to Finance and Fury, The say What Wednesday edition where we answer your questions, and sometimes questions from people from the gym – such as today Is this a scam – moneysmart have a page on this – which is good resource – give a quick summary of this – but...

(Intro Series) Trusting yourself and learning the basics

Intro - Episode 4 Trusting yourself and learning the basics To start off, do you think that having a map to financial independence would be the ideal solution? Compared to a puzzle it actually would be far better than trying to piece together something, if you could...

Say What Wednesday: Welcome to the Wild West

Say What Wednesdays Welcome to the Wild West Welcome to Say What Wednesday This week we’re going to answer some of the burning questions that have been on a lot of peoples’ minds around the banking royal commission…and rather than repeat everything you’ve been hearing...

The 4 reasons when not to buy property

Welcome to Finance and Fury Today’s episode is with Jayden and we will be talking about why property might not work for you, or when you shouldn’t buy property. We have talked about using property to build long term wealth using leverage. However, there are some...

The skinny on spare change investment apps and building wealth when you’re earning $25,000 or less a year.

Say What Wednesday The skinny on spare change investment apps and building wealth when you’re earning $25,000 or less a year. Welcome to Say What Wednesdays – Where we answer your personal finance questions each week. Two questions this week from Chris: No 1 what are...

Pin It on Pinterest

Share This