Tuesday, October 07, 2008

Make your predictions here re the US Dollar

Lets get the pundits pontificating:

How do you know which way the US Dollar will go, especially in relation to the $A? Will it keep going up, or down? How do you know? I'm keen for a clue here. Markets 101.

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Pic on Flickr by THomas Hawk.

8 comments:

Nick Fortescue said...

OK first a disclaimer - as I work in finance, I know by regulation I'm not allowed or qualified to give you advice, so this is punditry, not financial advice.

Markets 101:
1) The best predictor for FX for future rates is todays rate. I.E. no-one has a clue how to answer your question, and if they say they do your next question should be "Why aren't you rich then?"
2) AUD-USD is pretty closely correlated with commodities, which is pretty close to oil price. So if I could answer your question, I could tell you what was going to happen with oil. So if you think Oil (or steel or gold or ...) is going to get more expensive, then assume AUD will be worth more in the future and vice-versa.
3) Forward markets for currencies always reflect interest rates. Aussie 3 month rates are about 8% today, USD 3 month rates are about 4.3% So that means if rates stay the same, you could borrow USD at 4.3%, buy AUD, get 8% interest, and then change it back for a profit after 3 months. This is called a carry trade. In order for this not to work, AUD will have to be cheaper than now in 3 months. However, see point (1).

Hear endeth the lesson.

Nick Fortescue said...

Also worth mentioning: James 4:13-17 and 1 Thess 5:1-3

Justin said...

Indeed, Nick. Indeed.

Have we met?

Nick Fortescue said...

No we haven't, I'm one of the (usually) silent anonymous hordes on the internet. I think I probably started reading you after Michael Jensen linked to you (I know Michael from church in Oxford UK).

Anonymous said...

http://www.bloomberg.com/avp/avp.htm?N=av&T=JPMorgan's%20Auld%20Says%20RBA%20May%20Cut%20Rates%20by%20Half-Point&clipSRC=mms://media2.bloomberg.com/cache/vqCNdkRb_9.0.asf

SeaPea said...

someone told me about a year ago at a dinner party in london, that the US dollar will once again start to - albeit slowly - inch back up (in relations to the pound sterling). i guess that's how those people make living/money: by predicting something that they cannot (or shouldn't?) predict.

i feel like the Feds are scaring people, instead of trying to really do something about the economy right now. all about the great big "D" word yet on fifth or madison avenues, i see nothing but shopping sprees of new yorkers. same goes with people my age who are constantly talking about buying condos and such. nobody seems to have a real FEAR of money/economy at this moment. perhaps manhattan is an anomaly.

Andrew & Jessica said...

J - this post makes more sense now... it is a good time to take your USD back with you to SYD!! Bad time to have $ in Aus and thinking of a move to the USA next year...

Go well back to Aus... as many have said, it is good for SYD.

A subversive response coming to "The (subversive) Parable of the Whistle-blower" post tonight or in the AM...

I will be praying for you as you prepare this sermon. One option will make a lot of sense in NYC and a place like SYD, but the other option will not be a popular word, often the prophet/preachers have to go with the unpopular...

AH

Justin said...

AH -- Actually, this post was about a transfer of money that we had to make... whether we left NYC or not.

Thanks for your prayers, AH. But it won't be about courage to say a particular view. Here in NYC, they won't mind which view I take. So it won't be a matter of being popular or unpopular. In fact, I'll be more popular if I take the alternative reading.

I just want the truth. And I really am looking to be persuaded.