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

(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...

Cover your butt! A closer look at diversification

Episode 6 Not all returns are created equal; diversification (and over diversification), correlation and covering your butt Welcome to Finance & Fury! I’m sure that everyone’s heard the saying, “playing it safe” before. And in any game, it’s generally a good idea. If...

Artificial Intelligence and Investing: The future is here

Episode 29 Artificial Intelligence and Investing: The future is here Today’s episode of Finance & Fury we’re talking about Artificial Intelligence taking over the ETF and investment market. The discussion was actually started by one of our listeners, Gabriel who...

Financial crash proof your share investments

Episode 11 Financial crash proof your share investments Welcome to Finance and Fury! Financial Crash proof your Share investments There is no way to control the rise and fall of investments but focusing on what you can control makes all the difference! Behaviours lead...

Furious Fridays: The Devil giveth and the Devil taketh away

Furious Friday The Devil giveth and the Devil taketh away Welcome to Finance and Fury! If you haven’t listened to last Friday’s episode go check it out, it’s a prelude to this episode. Today we are going to discuss the founder of Communism – Karl Marx, along with his...

Is money the root of all evil? And, how statistics are used to perpetuate misunderstandings and f*ck with you

Furious Friday Is money the root of all evil? And, how statistics are used to perpetuate misunderstandings and f*ck with you Welcome to Furious Friday – These episodes aim to solve misunderstandings In this episode -  Furious about the muckery of statistics used to...

How to be wealthy; Germs, Monopoly, and Competition Vs Cooperation

Episode 2 How to be wealthy; Germs, Monopoly, and Competition Vs Cooperation. Hey guys, and welcome to Finance and Fury. Today the misunderstanding we're going to be tackling is how to be wealthy. There seems to be a lot of “rich-hating” going on around at the moment,...

Furious Fridays: The Holocaust, famine in the Ukraine, and how we just keep repeating the same mistakes, Rick and Morty style

Furious Fridays The Holocaust, famine in the Ukraine, and how we just keep repeating the same mistakes, Rick and Morty style Welcome to Finance and Fury, Furious Friday Have a think about how much you know about history? Are you familiar with the big events, like WW1...

Furious Friday: The centralisation of power and control of the economy

Furious Fridays The centralisation of power and control of the economy Last Friday we looked at the stock market crashes of 1907 and 2008 Difference between them was the crash of 1907 had no intervention by any central bank in the USA – because no central bank...

Debt recycling & leverage

Say What Wednesdays Debt Recycling & Leverage Welcome to Finance & Fury, the 'Say What Wednesdays' editions! Today’s question comes from Dale: “My question refers to a point you and Jayden made a few times about recycling debt or using good, specifically using equity...

Pin It on Pinterest

Share This