Maria’s Note: Longtime readers know Bill is not a trader. But for Dear Readers so inclined, we’re passing along a timely way to take advantage of weakness in the Aussie dollar. It comes from the desk of Andy Krieger, who made the front page of The Wall Street Journal after booking a $300 million profit from a single trade…
Andy will break his silence about that trade, for the first time on camera, at his BIG Trade event next Thursday, February 20. And seven lucky folks will get Andy’s research and trade recommendations, completely free. If you’re interested, find out more here. Then read on for Andy’s timely analysis…
The Australian dollar (AUD) has been under heavy pressure lately. And it shows no signs of stopping.
Since the start of 2020, the AUD has lost over 5% of its value relative to the U.S. dollar (USD). That’s a significant move for a major currency. But it’s still one of my favorite shorting opportunities right now. Here’s why…
The positive performance of the AUD during the first part of the last decade was largely fueled by the growth of the Chinese economy.
China accounts for 38% of all of Australia’s exports. So as the Chinese economy roared ahead, Australian exports to China surged along with it.
In other words, the success of the Australian economy has largely been tied to the success of the Chinese economy.
Now, though, the Australian economy is facing headwinds.
Fueled by the U.S.-China trade war, China’s growth dropped to its lowest level in 27 years last summer, digging into Australia’s exports…
The bushfires have caused massive property damage, loss of wildlife, and the destruction of 186,000 square miles of land…
And just when things started looking better – with the partial resolution of the trade war, along with heavy rains to put out the raging bushfires… The country now faces its biggest challenge yet: the coronavirus outbreak in China.
As a result, the land down under is getting clobbered again… and its currency along with it.
Just take a look at the chart below…
In January 2018, just over two years ago, AUD was worth $0.8110 USD.
On Friday, the pair closed around $0.6675 – an 18% drop. That’s the lowest level in nearly 11 years… and the fundamentals suggest it may have much further to fall.
As I mentioned above, the coronavirus is the biggest threat.
Remember, the Chinese economy makes up over one-third of Australia’s exports. And the coronavirus has the potential to severely impact the Chinese economy.
It’s still too early to say how weak the first-quarter economic numbers coming out of China will be. But the coronavirus has already brought much of the Chinese industrial production and travel to a standstill.
I expect the numbers to collapse in the first quarter of 2020… And lead to a knock-on effect that drives the AUD down to levels we haven’t seen in nearly 20 years.
And there’s another key headwind for the Australian dollar…
Depending on the scale of the coronavirus impact, the Reserve Bank of Australia could be forced to cut interest rates further. Aggressive monetary easing – through not only interest rate cuts, but potentially even quantitative easing (money printing) – could very well be the result. This would weaken the AUD further.
Now, I am not forecasting that we’ll see the AUD trade down to less than $0.50 per USD. (Its lowest rate ever was $0.4780 back in April 2001.) It’s premature to paint that bleak of a picture.
But if China’s economy goes into a real tailspin as many predict, we should expect the AUD to follow. A move towards the lows of 2009, around the $0.6010 level, is certainly realistic. That would be another 10% drop.
Even a move to $0.6250 would be a big move, and that is reasonable if the coronavirus inflicts much more damage to the Chinese economy.
I’ll refine my forecasts over the coming weeks as we see how things play out.
In the meantime, currency traders can look to sell short the AUD/USD currency pair between $0.6705 and $0.6735. Risk only about 1% on the trade for an excellent risk/reward ratio.
– Andy Krieger
P.S. Next Thursday, February 20 at 8 p.m. ET, I’ll reveal the details of an imminent Black Swan event that could have a serious impact on your wealth…
Ignore it and you’ll be putting yourself at risk. But if you follow my advice and position yourself correctly, you could potentially 30x your money, turning every $1,000 into $30,000…
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