Aussie Remains the Strongest Bet on Recovery

Last updated 11/12/2009 3:56 AM ET (GMT -5) 6 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Australian employment data surprised to the upside printing positive for the second month in a row as job increased by 24.5K against expectations of -10.1K drop. The unemployment rate ticked up to 5.8% from 5.7% in September but has essentially remained steady at these levels for more than 6 months.

The Australian economy has generated more than 75K jobs since June in sharp contrast to the rest of the G-20 universe where job losses continue to be the rule rather than the exception. The latest employment statistics suggest that RBA will now likely raise rates yet another 25bp in December putting the yield on the Aussie at 3.75% - the highest amongst industrialized nations.

After hitting another fresh yearly high at 9370 in the aftermath of the news, the AUD/USD sold off for the rest of the night on profit taking and broad risk aversion flows. If equities continue to weaken for the rest of the day, the pair could drift lower to test support at 9300. However intermediate term prospects for the Aussie continue to look extraordinarily positive as the unit benefits not only from the anticipated rise in yield but from the persistent rise in gold as well. The yellow metal hit yet another record high today reaching $1122/oz. on reports that Barrick Gold will no longer hedge its book, lifting a massive offer from the market.

We continue to be bullish Aussie as the primary proxy for the recovery trade and believe that it can reach 9500 if risk appetite remains supportive into the close of the year. Alternately, with RBNZ and BOC remaining stationary at least through Q1 of 2010 the unit should also outperform the kiwi and the loonie on the crosses as interest rate differentials continue to widen.

Comments (6)

FXDragon

November 12, 2009 at 06:16 AM ET

"reports that Barrick Gold will no longer hedge its book, lifting a massive offer from the market." Could you explain that? Excuse my language.

FXDragon

November 12, 2009 at 06:18 AM ET

I mean what do you mean by hedging the book and lifting massive offer from the market?

Thanks,

bschlossberg

November 12, 2009 at 06:37 AM ET

Barrick in the past has hedged their gold production meaning they went out and sold futures contracts. Now that they decided not to, a massive seller is out of the market

FXDragon

November 12, 2009 at 08:04 AM ET

Im not experienced on gold futures, does that mean they think gld will continue uptrend so they dont even need futures for hedge purposes?

bschlossberg

November 12, 2009 at 08:06 AM ET

Correct

Stephan Smith

November 12, 2009 at 10:25 AM ET

Australia is doing it right! Great numbers. AUD is going to be dominating the USD for some time now. GOLD is continuing to go up too? That means the USD is going down. Profits anyone?

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.