When offering forecasts for 2011, I feel like I can just take the
stock phrase “______ is due for a correction” and apply it to one of any
number of currencies. But let’s face it: 2009 – 2010 were banner years
for commodity currencies and emerging market currencies, as investors
shook off the credit crisis and piled back into risky assets. As a
result, a widespread correction might be just what the doctor ordered,
starting with the Australian Dollar.
By any measure, the Aussie was a standout in the forex markets in
2010. After getting off to a slow start, it rose a whopping 25% against
the US Dollar, and breached parity (1:1) for the first time since it was
launched in 1983. Just like with every currency, there is a narrative
that can be used to explain the Aussie’s rise. High interest rates.
Strong economic growth. In the end, though, it comes down to
commodities.
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