The CurrencyShares Australian Dollar Trust (NYSE:
), the ETF proxy for the Australian dollar, has shown itself to
be sensitive to chatter about Federal Reserve Tapering of
Since May 20, about the time tapering talk really started, FXA
is off nearly seven percent.
That does not include the more than one percent FXA has lost
Wednesday. Nor does it include the fact that the ETF traded near
its lows of the day immediately after the release of minutes from
the Fed's most recent monetary policy meeting. While it is fair
to say the outlook regarding tapering by Fed members is "mixed,"
it is also apparent bond-buying will at least be slowed (tapered)
by the end of this year. That is one catalyst that could weigh on
higher beta currencies, such as the Australian dollar.
The Aussie has gone from star to laggard in a hurry. Until its
recent decline, the Aussie was the best-performing developed
market currency against the U.S. dollar since the end of the
developed market crisis. Attracted to interest rates that are
higher than much of the developed world's and Australia's
pristine AAA credit rating, global investors, including central
banks, snatched up the Aussie in droves.
Aussie Dollar ETF Goes From Star To Laggard
Over the past couple of weeks, the Aussie, and thereby FXA,
has regained some strength against the greenback, but that does
not change the triple whammy faced by the currency. That is the
Reserve Bank of Australia's insistence that despite record low
interest rates of 2.5 percent, the currency is still overvalued,
the end of Australia's mining boom and the fact that the Aussie
is still among the most heavily shorted developed market
All of that has been good news for the unheralded ProShares
UltraShort Australian Dollar (NYSE:
). CROC stands as valid avenue for investors looking to
profit from Aussie downside
without having to go directly into the currency market.
Not only that, but in addition to the Fed catalyst, there is
another domestic catalyst looming that could trigger additional
Aussie downside (upside for CROC).
Australia holds national elections early next month and some
market observers are predicting a post-election decline for the
Aussie. "If the Coalition wins this election, as seems likely, it
might have to deal with a similar decline in the currency as it
did in 1996. On the day of the 1996 election, the dollar was 76.1
US cents. Five years later, on April 2, 2001, it bottomed at
47.78 US cents,
according to Australia's ABC News
Importantly, the Alan Kohler, the author of that commentary,
said it is not out of the realm of possibility the Aussie could
fall to 80 cents against the U.S. dollar. The pair currently
trades at 0.9017, but that is above many of the year-end
forecasts for the pair
from major global banks
, many of which range from 85 to 88 cents.
Some even see AUD/USD falling below 85 cents next year. A fall
to 80 cents could take a while, but with Fed tapering and
Australian elections looming, seeing AUD/USD trade below 90 cents
again is a real possibility and one that bodes well for CROC.
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Disclosure: Author is long CROC.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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