I've posted a similar thread on a general forum, but didn't get much interest. So I'm trying this one.
I am a believer in the China growth story, and hence hold a heavy concentration of Aussie stocks leveraged to this theme, like RIO, AWC, AGO.
However with the AUD so strong vs the USD, I am weary that a pull back in recent AUD/USD gains would affect my portfolio. I'm therefore thinking of this trade:
Partially sell down a small position in RIO and AWC (which I've now done), and Buy an ASX listed ETF of US stocks. Therefore I get a USD exposure, without the low yields of USD interest rates.
If sentiment improves, and the Fed raises interest rates (maybe in 18 months?) the USD will strengthen, and therefore weaken commodities. Improved sentiment (higher S&P 500) and a stronger USD would be the ideal outcome for my proposed trade - hence hedging against a pullback in commodity markets from a stronger USD.
If QE2 happens, the USD weakens, but US stocks strengthen, mitigating my downside risk. If QE2 dosen't happen, the USD strengthens, but US stocks weaken, also mitigating my downside risk. My worst sceanrio, further strong gains in the AUD/USD AND weakening of US stocks dosen't seem likely to my mind, unless the US has sovereign debt issues (then we all run for the hills)
