the AUD is a commodity currency and as we are price takers not makers the currency should more closely follow these prices.
As i mentioned earlier recently there has been a divergence between the commodity prices and the AUD for various perceptions about the future drivers of economic growth (1999 - 2001) During this period the AUD reacted inversely to commodity prices in contrast to the tracking pattern it is used to
Although Australia has greatly expanded its produce from commodities into financial services and telecoms, In reality we will be priced based on the prices for our goods of which are commodities
look for the AUD to follow commodity prices in (US) as it has done for most of the time in the last few decades
u could argue that the strength of the australian economy is a reason as the liberal government have dramatically reigned in debt to decrease the defecit, althought what effect will this have on the AU bond market which is already losing depth and liquidity.
I believe that the AUD and economy will perform strongly due to reasons mentioned and the defensive nature of our economy during the early stages of recovery however as already seen in jan this year huge capital flows into ASIA, JAPAN and emerging markets have been seen and i would expect superfunds and australian investors to look for higher returns in international markets once the recovery gains strength and momentum (12 -24months)
This would again effect supply and demand as international investors must purchase domestic currency (and sell theirs) to invest in those markets. (as has already been happening in US)
Ie. how realistic is it that the small defensive Australian market can continue to lead the world in investment returns as it has done for the last 12 months.
