Saturday 26/11/2011 9PM CET

We are short the AUD from the pop up to 1.080 and set a target of 90.00 and we see that easily being hit. The Aussie Dollar had huge gains when the global economy was bullish and now its going to get hit hard as the global economy goes into a deep decline which has already started.

In just a little over 3 years the Aussie dollar has moved from 60.00 to almost double in value making it the most overvalued of the major currencies at its peak but now, we are going to see it drop a long way down as the global economic crisis gets worse.

The Aussie dollar has been the speculative currency of choice due to its high yield but these speculators are now selling up in favour of “safer” currencies. The slow down of the global economy will impact on Aussie exports and of course the key nation to watch is China.

China to Face a Big Slowdown

Chinese Vice Premier Wang said last week that global uncertainty suggest that the Chinese may look to ease monetary policy in the short term. Not only is China worried about its export markets of the US and Europe which are starting to show reduced demand, it has no demand at home to pick up the slack. Even worse, there is a housing bubble waiting to burst and Chinese local governments have engaged in reckless spending for years and are heavily in debt. As China slows, commodity prices will continue to weaken and the trend has already started:

There has been a recent 40% drop in the international iron ore market, and coal which is vital to the Central Queensland economy also looks set for heavy falls as China slows up. The hundreds of millions of Chinese who were originally expected to become middle class will now not cross over from poverty and this will hit the beef market which is another big export to China. China slowing down is going to hit the Australian economy hard and the slow down has already started.

China's November HSBC manufacturing PMI, last week shows that the industrial sector is in slowdown phase which is accelerating The sharp fall of the headline index was concentrated in output and new orders, which fell by 4.7 and 6.7 points respectively which indicate contraction in the economy.

I hear all the time about how the Chinese economy will grow by 9% or more in the next year but this is rubbish.

The Chinese economic miracle is over – its export markets have dried up and it has failed to stimulate internal demand. Of course, the double digit growth rates were built on currency manipulation and the US, has recently given China a strong warning on this and we will possibly see US action unless the Chinese allow the Yaun to rise.

All in all, we expect to see the Chinese economy show far less growth than expected and longer term, we think it will fail to hold its coveted number 2 slot, in terms of global economic size.

The Reserve Bank will be forced to cut official interest rates over the coming months as the Chinese and global economic slow down hit the Aussie economy hard.

Comment

Were holding 97.00 for now but this looks like it will give way but first we will have a rally as we are oversold and we cont expect a big one and would look to load up on any rally to 97.00 and see 98.00 as about the best the bulls can hope for. We are looking to add our banked profit we took on 50% of our position on Friday on any rally. We are short from the pop up to 1.080 and our current stop on open positions is behind the mid BB behind 1.010.

We had an initial target of 90.00 and expect this to be hit and exceeded and have adjusted our target to 80.00 so we have plenty of profit and expect a lot more to come.

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