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

8 Tax Loopholes, Trump’s tax losses, and thoughts on progressive taxation

Episode 3 8 Tax Loopholes, Trump's tax losses, and thoughts on progressive taxation Welcome to Finance & Fury! Today we're talking about increasing your net income …and the way to do that is reducing tax. So, in today's episode we'll run through why we pay tax,...

Current Australian Share Market

Episode 39 Current Australian Share Market Welcome to Finance and Fury Shares are at almost the same price as 2 years ago in Australia – What is happening? Mid Dec 2016 – 5,580 and last week the 3rd of December – 5,667 Today – is it a great time to buy some shares or...

Risky business; why fortune favours the brave (and smart!) and why volatility isn’t necessarily a bad thing

Episode 5 Risky business; why fortune favours the brave (and smart!) and why volatility isn’t necessarily a bad thing Today on Finance & Fury, we’re talking about …risky business! Why take risk at all when investing? There must be a reason some people are willing...

How would Universal Basic Income work in Australia?

Say What Wednesday How would Universal Basic Income work in Australia? Let’s take a look at a recent Press Club speech from the Australian Greens leader, Dr Richard Di Natale, “With the radical way that the nature of work is changing, along with increasing inequality,...

What does it look like when a government takes over the control of a currency?

Welcome to Finance and Fury, the Furious Friday. Last episode, we went through the combination of monetary and fiscal policy, larger scale of QE and the quick introduction to modern monetary theory. Today I was going to go through the recovery of the economy today,...

Are tech shares like Afterpay and Facebook are a good long-term investment option?

Welcome to Finance and Fury, the Say What Wednesday edition.  Today's question comes from Mike - "Hey Louis, Wondering if you think buying Tech shares are worthwhile"  We have the FANG and the WAAAX – US – FANG - Facebook, Amazon, Netflix and Google Aus – WAAAX -...

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: 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...

What would you do if you won the lotto?

Welcome to Finance and Fury Have you ever thought about What would you do if you won the lotto? What would you do with it? This depends on many things: the size, type of lifestyle, and how much you value money now. Today: Talk about how winners end up with no money...

Younger than 35 are experiencing low to negative income growth – but there are real ways of actually getting around it

Episode 27 Younger than 35 are experiencing low to negative income growth - but there are real ways of actually getting around it Today we’re talking about a news article that came out highlighting that young Australians’ are experiencing either zero, or negative...

Pin It on Pinterest

Share This