redback report, week ended 1/10/10, page-11

Hi Wink,

It actually works in a reverse way from what you are suggesting.

A strong local currency, e.g. AUD v US$ means the US person is getting more bang for their buck.

Here's a comparison Chart of EWA (ETF for Australian Shares on New York Stock Exchange) and the Ozzie Dollar.



And here's a comparison chart of EWA and XAO (All Ordinaries).



You'll notice, for example, that recently the XAO has been going sideways. The EWA has been heading north. And so has the Ozzie Dollar.

The recent strength in the EWA compared to the XAO is purely a currency effect.

Strong local currency means strong performance on the local stock market for Overseas investors.

Let's look at some straight figures.

suppose AUD is at parity. Aud $100 = US$100

XAO is 5000 points (in Ozzie Dollars). It is also 5000 points in US$

Then XAO stays steady, while AUD improves against the American Dollar, say:

AUD $90 = US$100

The XAO in American dollars is 5000*100/90=5556 in US$

So if our currency starts to fall, then that is a disincentive for overseas investors. They start pulling out of our stocks - negative for our stocks.

No interest rate today should be a negative for our market. Of course, that is only the case if all other things remain equal. Which they don't.

But when you isolate out the currency effect, it is an important factor in the performance of our market.

Cheers
Red