Australian Dollar at Historical High Against the US Dollar [Updated]

Bloomberg reports:
March 25 (Bloomberg) -- The Australian dollar advanced to its highest level since it began trading freely in 1983 as a gain in global stocks boosted demand for assets related to economic growth.

The Aussie had its biggest weekly rally since July against its U.S. counterpart [...]

There’s low volatility, a stable VIX index and equities are doing well, so you have to be long on the highest-yielding currency you can find,” said Tony Allen, global head of foreign-exchange trading at Australia & New Zealand Banking Group Ltd. in Sydney. A long position is a bet an asset will gain in value.

Australia’s dollar appreciated 0.7 percent to $1.0288 at 12:12 p.m. in New York, from $1.0212 yesterday, after touching the record high of $1.0294. [...]
For information, I have decided to take the other side of the trade of Tony Allen, and went short the AUD against the USD at 1.0251. I could be wrong of course, but that's why stop orders exists.
Update: stopped out. Will try again later.
March 28 (Bloomberg) -- The Australian dollar rose for a seventh day versus the U.S. currency in the longest stretch of advances this year as evidence of a global economic recovery spurred demand for higher-yielding currencies.
In terms of the Australian dollar, investors prefer to look at the glass half full,” said Samarjit Shankar, a managing director of the foreign-exchange group in Boston at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “Economic growth in general is not going to be derailed.”


Tiho said...

Hahaha! Everyone is a contrarian these days, "taking the other side".

Did you know that trading against the trend is actually NOT a contrarian thing to do? Didn't you also short Crude Oil as well a month or so go with some puts?

pej said...

I don't understand you Tiho. On one side, you're this guy who's posting very interesting things, and showing how much sentiment is lopsided and everyone is on the same side of the boat, and on the other, you're telling me that "everyone is taking the other side" ?

Same for oil really. ToC shows the biggest speculative long position in history, and you keep on ridiculing my position?

Anyway, I've got long term far out of the money puts on oil, that i have been growing over the past week or two, and i'm perfectly happy and confortable with them :-)

Tiho said...
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Tiho said...
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Tiho said...

You see, extreme bullish sentiment can last for a long time. Therefore, what you need to understand is that commodities are moved by demand and supply - not by extreme COT positioning. Commodity related currencies tend to follow CRB Index in some shape or form. My posts are all about being cautious of sentiment, but sentiment itself is not a blue print to short a running bull. This is not a contrarian move.

All you are doing is just trading against a long term powerful demand and supply trend... which is still UP and not DOWN. Contrarian buys a dip when others panic and become bearish during a long term demand and supply trend which is UP and not DOWN.

Do you understand?

You see I'll give you an example... if commodity supplies were exceeding demand and yet there was extreme bullish sentiment and euphoria, it would be a good time to try and short the market. Currently, supply side is falling and demand side is increasing. There are shortages of commodities EVERYWHERE and with Japanese earthquake and rebuilding... this will just intensify everything further.

I remain bullish on commodities... because.... that's right... of demand and supply. If you finally figure that out, you will understand what you are doing wrong here. Sentiment is very useful, but it is not the END ALL AND BE ALL of investing the way you seem to think. It is also what majority of other newb bloggers also focus on as well.

I've tried to explain this to you in many previous posts and you still don't seem to understand, so I hope this finally helps you out. If not, oh well... as they say you can lead a horse to water but you can't force it to drink!

pej said...

Hi Tiho
Thanks for your detailed explanation.
I agree that on the long term, commodities prices should reflect demand and supply but like other markets, the futures market is a voting machine on the short term, and a weighting machine on the long term.

That said, there's an argument against your point: if commodities are in short supply, and will remain in short supply in the future, then the market should have already priced this. Producers and real users would know better than you and me what the demand and supply look like.

Finally, I believe markets are far more driven by the greed and fear of the participants than by the rational thinking of a long term view on demand and supply.

Am I making any sense?

Tiho said...

You just borrowed those quotes from famous investors like Benjamin Graham, Warren Buffet and others. You do not actually know how to apply them. You sound just like every dude on the internet saying" fear and greed move markets"... and yet it seems your calls are always opposite to what the market does.

For example, how do you know when the voting will stop? You seem to be calling a top every time someone on Bloomberg posts a bullish article and than you say "from a contrary point of view" and yet that is not actually contrary. The market doesn't fall and you get stopped out.

Furthermore, the point I made above it is also quite obvious from your example and theory that supply and demand has already been priced into the markets. How do you know? I bet you don't even know about supply and demand for any commodity, despite others in the market place knowing more.

Do you know if there is a shortage of Sugar? What is happening to Crude Oil reserves? What about Cocoa exporters? And what type of a demand can we expect for Soybeans? Your answer once again will be... "whatever I know the market knows much more and it has been priced as the sentiment is bullish". But it doesn't always work like that, because if it was that easy you would be getting every trade right... wouldn't you?

And I also disagree with your quote about fear and greed. You are obviously inexperienced and are failing to realise that bubbles or bull markets (which ever name you want to use) are driven by participants that are very rational. Yes, that is right. They know that its a bubble and that is why they invest it. They are very smart and rational, understanding that the market will stay irrational and overshot.

And that is why markets overshoot in each direction, each and every time. You see this is not the top for Oil or Australian Dollar, because this is not euphoria yet. You ain't see nothing yet... so just you wait til you see euphoria and the voting machine takes off at the end of the commodity bull market. I am a bull and I think even I will be shocked at how far the whole thing will go!

pej said...

Well, Tiho, it seems like we're not seeing the markets with the same eyes.

99% of people "investing" in CDOs lost their shirts. How can you then tell that are "very smart and rational"? Did Bear Sterns and Lehman and all the other banks collapse by being super smart? It doesn't make sense, let's face it.

To answer your question, voting stops when everybody has voted. Simple right? That's the purpose of the sentiment indicators. You are never sure 100%, but you still get a decent probability of betting on the right side of the move. And if not, the stop loss is here.

Regarding my positions, I don't have much to lose by being wrong: now that volatility is super low, I'm playing with out of the money puts. Big potential rewards and small potential losses. :-)

Finally, and we've discussed that already, but fundamentals do not drive markets. The fundamentals for oil haven't really changed in the past 4 years, yet oil went from 40 to 147, then felt to 32 and is now trading at 106... And I guess I could find many other similar examples in commodities...

One last statement: I find you're a very interesting and person, with ideas to listen to and with a fantastic blog. So let's leave personal attacks aside, and remain courteous.