Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.
Overview and Rationale:
A contrarian play, FXA should benefit from any rebound in commodity and energy prices, intervention to weaken the Japanese yen, perception that the currency is oversold and the attraction of a 7% yield.
In 2007 Australia had about 13% of world reserves of iron ore and was ranked fourth after Ukraine (19%), Russia (16%) and China (14%). In terms of contained iron, Australia has about 15% of the world’s EDR and is ranked second behind Russia (19%). Australia produces around 16% of the world’s iron ore and is ranked third behind China (32%) and Brazil (19%).
While South Africa still has the world’s largest reserve of gold at 6000 tons (14.3%), Australia has the second largest reserve with approximately 12% of the world’s holdings.
Japanese investors seeking higher yields in foreign bond markets, such as in Australia and New Zealand, have been brutalized in recent months, with the Aussie dollar and NZ kiwi losing roughly 45% of their value against the yen to their lowest levels this decade.
FXA also offers a nice yield of 7.3% and also provides a nice hedge on the U.S. Dollar. Though recently weak, the Aussie dollar, it may reverse course as global markets concern over the Fed printing press and inflationary pressures returns.
Catalyst:
From a technical perspective, the timing to begin building a position in FXA looks attractive. The AUDUSD chart shows that the AUD has fallen from near parity with the USD at .95 to .67. During the past decade the AUD has traded above .65 for nearly 7 out of the last 10 years. The fall of the AUD has been brutal and is an outlier compared with the performance of other major currencies.
Risk Factor: Moderate given the depressed state of energy & commodity prices.
Risk Management: Suggest an 8% trailing stop loss.
Tip: You may wish to scale into a position at a price of $65 or lower.
ETF Pick of the Week – Australian Dollar (FXA) 1/24/2009
Carl Delfeld
Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.
Overview and Rationale:
A contrarian play, FXA should benefit from any rebound in commodity and energy prices, intervention to weaken the Japanese yen, perception that the currency is oversold and the attraction of a 7% yield.
In 2007 Australia had about 13% of world reserves of iron ore and was ranked fourth after Ukraine (19%), Russia (16%) and China (14%). In terms of contained iron, Australia has about 15% of the world’s EDR and is ranked second behind Russia (19%). Australia produces around 16% of the world’s iron ore and is ranked third behind China (32%) and Brazil (19%).
While South Africa still has the world’s largest reserve of gold at 6000 tons (14.3%), Australia has the second largest reserve with approximately 12% of the world’s holdings.
Japanese investors seeking higher yields in foreign bond markets, such as in Australia and New Zealand, have been brutalized in recent months, with the Aussie dollar and NZ kiwi losing roughly 45% of their value against the yen to their lowest levels this decade.
FXA also offers a nice yield of 7.3% and also provides a nice hedge on the U.S. Dollar. Though recently weak, the Aussie dollar, it may reverse course as global markets concern over the Fed printing press and inflationary pressures returns.
Catalyst:
From a technical perspective, the timing to begin building a position in FXA looks attractive. The AUDUSD chart shows that the AUD has fallen from near parity with the USD at .95 to .67. During the past decade the AUD has traded above .65 for nearly 7 out of the last 10 years. The fall of the AUD has been brutal and is an outlier compared with the performance of other major currencies.
Risk Factor: Moderate given the depressed state of energy & commodity prices.
Risk Management: Suggest an 8% trailing stop loss.
Tip: You may wish to scale into a position at a price of $65 or lower.