The Australian dollar may reach parity against the US dollar in 2010

Politicians love a strong currency in an economic crisis. It's more of a political posturing than anything economically viable for a country (especially when exports have been hammered, as in the case of Japan), more so if the country with a strong currency amidst a global recession or 'crisis' and continues to swell it's deficit. This could be seen recently in Japan's Finance Minister Hirohisa Fujii saying on the 28th September 2009 [quoted], "It would be a mistake to artificially influence foreign exchange rates". this was said after the Japanese Yen against the US Dollar traded just under 90 Yen. The remarks were then retracted on the 29th September 2009 [quote] "If moves are irregular, there is a possibility we might take whatever action deemed necessary for the sake of the country".

I believe in strong currencies and healthy goverment accounts. But as the reserve currency (US Dollar) of the world is rapidly losing it's purchasing power and it's value, then we have distortions in the Foreign Exchange markets and added volatility via politicians. It's not that the Yen is particularly a favorable currency of value (Japan's cash rate sits at 0.1%) but against the US dollar, and if a politicians make remarks that 'they won't intervene, then the market 'buys'.

Of course Japan relies on exports which have been decimated by the global recession a slow recovery is on the cards for Japan hence the desire for exporters to have a weaker Yen. So there is a lot of political and economic issues surrounding the currency markets; especially as the American economic policies are too further weaken the US dollar, one should prepare in the FX markets that the currencies will reflect distortions via USD weakness.

I had a put on the Australian dollar prior to the massive sell off of the AUD on 9 July 2008 (peaked at 0.97 and collapsed to 0.60 20th October 2008) I sold my warrants just as the US Dollar rebounded in November/December 2008, re-bought AUD put warrants with an expectation that stocks could go lower and break supports and the US Dollar could strengthen short term into 2009. This was incorrect as stocks hit their lows, as we know rebounded incredibly from November 2008 and March 2009, so there was a sell on the AUD put and replaced with call option. So with the markets, as they are presently, continues to rally within a trading rage refer to Dow still showing downside pressure, but no substantial correction at this point , the risk currencies such as the Canadian Dollar, Australian Dollar, Brazilian Real and even the European Dollar have all shown investor interest (not to forget the Japanese yen, which is normally a risk averse currency).

There were currency strategists that made calls prior to the huge AUD sell off last year claiming the AUD could reach parity against the USD. I thought that was just too optimistic especially after the Lehman collapsed. This time the parity aspect of the AUD against the USD is looking more realistic, especially when the global ecomomy has stablized and the Australian ecomomy is whisper away from overheating (inflation) namely housing (which did not correct when the recession hit in 2008). So the Reserve bank of Australia looking likely to lift rates from it's historic ow of 3.00%. With a combination of 0% interest rates in the US, plus investors pouring money into other markets and away USD denominated assets; the Australian dollar maintain its attractiveness and will continue to rally, unless a substantial stock sell off occurs in the next 3mths. Either way, with the Federal Reserve not concerned or doesn't care about inflation, US dollar weakness with most definitely drive the Australian dollar high. Parity could occur at some point early 2010.

*morbius glass doesn't give investment advice, trade at your own risk