Aus Dollar Hits New Highs as Trade Booms, US Dollar Declines

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The Governor of the Reserve Bank of Australia, Glenn Stevens, is well aware that Australia’s location down the block from its Asian neighbours is a fortunate accident of geography. Trade is booming.

“Given … a terms of trade event for Australia which is a once in a 50-year, if not a once in a century event, it isn’t surprising if the currency wants to be high in that world.”

“That world” is the world where commodity currencies crush the currencies of deeply indebted national governments. Thus, the Aussie made an 18-year high against the greenback and a 16-year high against the yen. Exports of raw materials rose, and foreign demand for Aussie money grew too.

Stevens’ counterpart, US Fed governor Ben Bernanke, gave global traders more reason to flee the US dollar when he told the important- looking empty suits on Capitol Hill that the Fed fears inflation more than deflation, that the housing market will get worse before it gets better, and that America’s economy should recover next year.

Tomorrow is another day, too. Do you get the feeling that the supposed caretakers of America’s currency are absolutely clueless? Either that, or they are shrewdly keeping a calm façade as American money enters its next phase of humiliating decline.

By the way, no one here in America seems to care much about the dollar’s decline. That’s because they haven’t really noticed it yet. Aside from food, fuel, and healthcare, the only prices Americans are (or were) noting were of the housing variety. Consumer goods have stayed relatively cheap. Yet at the outposts of the Empire, in London, Sydney, Paris…pretty much anywhere really…the American dollar buys you less and less.

The total outstanding balance on Aussie credit cards is AU$40 billion. That’s a large minimum payment. Note to Australia: you don’t get rich spending money. Just look at America.

Dan Denning
The Daily Reckoning

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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