A recent poll showed that Australians are the happiest people among developed nations. I can believe that. Whenever I meet an Aussie, he or she is usually smiling and has a very positive outlook on life. “No worries, mate,” they always say.
I think it’s because they beat the odds.
Think about Australian history…
Its population base is from the prison colonies of Britain. They live on an island state (sort of, depending on which geographer you ask) that has massive deserts where temperatures exceeded 120 degrees last year. Farming is darn near impossible, given the climate.
Yet they survived.
More than that, they thrived.
Along the way, the winds of fortune have blown in their favor, as they found massive deposits of natural resources beneath their feet, making the Land Down Under a major supplier of commodities like copper.
As nations developed and gobbled up more resources, Australia stood to benefit.
Then something really big happened…
China began to grow.
As the most populated country on the planet began to expand, it needed massive amounts of natural resources. Not only was Australia able to provide many of those resources, but it was also relatively close by, making for a very profitable relationship.
All in all, Australia has had a phenomenal 10+ years. We can see the measures of its success everywhere, from the price of the country’s real estate to the value of the Aussie dollar, which flew from roughly 0.65 to the U.S. dollar all the way above parity (trading dollar for dollar).
Indeed, Aussies were growing rich.
But that has changed. There are signs the gravy train is nearing the end of the line…
Europe’s recession is a long way from Australia. The dismal growth in the U.S. is not exactly in its backyard either. Yet both of those economies are heavy importers from China. They slow down, China slows down.
At the same time, the Chinese government has been unsuccessful in convincing its population to rush out and spend their saved yuan.
And end-demand in other countries has been slowing, backing up all the way to the sources of commodities, like Australia.
This is the exact logic we have been discussing for over a year now whenever someone brings up currencies, and particularly the currencies of natural resource-based economies.
In fact, over the past eighteen months we’ve been at several functions with one particular commodity trader who is absolutely convinced the Aussie dollar is the place to be. No matter what we said, he was bent on telling everyone that selling U.S. dollars to buy Aussie dollars was a great trade.
A slowdown in Europe? Who cares!
Slack Chinese demand? They’ve got more people moving to cities, it will take care of itself!
Sluggish U.S. economy? The Fed’s on the case!
There was always some explanation of how or why the long Aussie dollar trade would work out. And now it hasn’t.
The Aussie dollar has fallen through parity with the U.S. dollar and is sitting in the mid-90 cents range. The reasons are clear, and are exactly what we have been forecasting.
Our expectation is that the Aussie dollar has further to fall, as does the Canadian dollar, which is only starting to crack.
As for the currency trader, maybe he can use all those Aussie dollars to buy Foster’s beer.
And Aussies are still really happy people, even if they aren’t as rich as they used to be.
Ahead of the Curve with Adam O’Dell
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