What can we expect for the Australian Dollar in weeks ahead?

Every Tuesday of the beginning of each month, the RBA would come make their interest rate decisions, and talk about their future readings of the Australian economy.

In the past eight months, the Australian Dollar has been rallying very strongly against most of its counterparts especially the USD because a strong growth in the Australian economy and the rapid increase in interest rates.

The rally in the Australian Dollar has been due to the rapid growth of the Chinese economy, which contributed to rising commodity prices, hence the Australian economy and the Australian Dollar.

But what can we expect for the first Tuesday of February 2011?

Well, the faster than expected growth in the Chinese GDP have put concerns to investors that the Chinese authorities may look to tighten its monetary policy in coming weeks, which could cool down its growth, hence, demand for Australian exports.

The recent flood in Queensland also worsened things. For weeks if not months, Queensland have been under water. Houses, businesses, crops and mines have been damaged. Even though the rainfall have decreased, the damage is still there. Banks and insurance companies would have to pull money out of their pockets, which could lower their profit expectations in the coming end of quarter. Housing prices that have surged through the roof may stall or even fall in effected places.

So, from these events, the RBA may decide to halt rising interest rates, and provide a dovish comment on interest rate expectations in the near term.

Hence, in coming weeks we could see the Australian Dollar fall down to its November low (0.955).

Happy Investing!

China's GDP growth released today (20th Jan 11') exceed expectations. What does this mean for traders?

The Chinese GDP growth for the past quarter was at 9.8% exceeding expectations of 9.4%. While on the one hand this may look like a positive sign for the world economy and especially traders, people are factoring in expectations from the Chinese government to cool down this rapid growth to prevent asset bubbles.

Last months CPI (inflation) figures came out higher than expected, which added pressure to the Bank of China to tighten monetary policy. Today's GDP figures would add more pressure to the BoC to revise it's policy. Last year the BoC increased banks' reserve rates three times, indicating it is trying to cool down its growth and rising asset prices.

Hence, instead of looking at this as a positive news, traders look into the future and price this into their trades as we are seeing now. After the figure was released, all major currencies rallied against the USD, however, a few minutes later, the USD came back into favor amid fears of future monetary policy tightening by the Chinese Authorities.

And which asset class would be affected the most? AUD, CAD, oil, iron ore, and other risky assets.

Hope you enjoyed it! and Happy Investing!

Laos A New World To Explore

While I have only been back for a week or so, much of what I have pictured about Laos when I was in Australia was wrong. Many things have changed, and many opportunities have presented itself. Laos has many things to offer, but we have to do the right things at the right place, with the right people and at the right time.

I was going to do business straight away, but I realized I need to learn the system first, which is very different from other countries (not surprising). Much of it should be left for you to see for yourself. Laos right now is growing at a very promising rate, the level of education is improving, and even though the traffic is still a problem, I can say that driving conditions have somewhat improved.

Buildings, apartments and businesses are growing like grass, everyday you see something new, or buildings getting higher. This shows that the economy is growing, and employment is on the rise. More cars are in the roads, roads are being built, and traffic police is doing a better job at directing traffic.

Land and real estate prices are on the rise, but I believe that as long as this growth trend continues, property prices are still cheap. At Dongpalan, we can still see homes despite it being in the central of Vientiane, but in the next five to ten years, this road will only have buildings, and those who hold land there will get 10 times the price of land now.

what is a concern is less people are farming, and more people are migrating into the city for jobs. More people are interested in manufacturing and service jobs. Agriculture land is decreasing as well as people in working in this industry. Thailand and Vietnam is moving towards industrialization and services, so agriculture and the food industry will be most attractive soon.

This is just my opinion from my observation, but not at all fact. Hence, for those who read please read with cautious as this is not a recommendation to do anything, but just my personal diary.

What Can Traders Expect for 2011?

I am writing this after I got up from a farewell and a new years party at a friend's place. I still feel dizzy, but really wanted to write about what I think are the major events that will determine market directions in the year 2011. I will start off with some macro events you traders should be focusing at  before you invest in any asset classes, then I will include some technicals to end the topic.

First we will start off with what everyone is familiar with, China. This giant has been named by economist and investors as the miracle economy. It's economy has been fueling the world economy and helping many others recover from the worse recession since the Great Depression. However, China's growth is expected to cool down next year as authorities have stepped in to curve inflation before it gets out of hand. Property prices, consumer goods have been shooting through the roof, and many economist have warned that China may have a crash and that could effect the world recovery. Hence, the Chinese authorities have been increasing interest rates. Last Saturday (25th December 2010) the Bank of China increased its benchmark interest rate by 25 basis points to curb inflation and rising prices. We would expect this trend to continue going into 2011 as authorities fight rising prices. What is the consequence of this for traders? Well, as interest rates rises we would expect consumers to spend less, people find it harder to access lending, and growth is expected to slow down. If China really slows down, commodities prices would likely suffer and economies such as Australia would be expected to slow down.

The second factor we have to be aware of is the crisis in Europe. We've seen Greece and Ireland ask for bail, now people are focusing on Spain's debt issue. This has led the EURO to depreciate in value from the exchange rate of USD1.42 to only 1.38. Much speculation is on whether the Euro zone will be able to exit the crisis this year. In addition to the mismanagement of debt, a major problem is the difference in economic development of different members of the EU. While Germany is the strongest economy of all members, many members are struggling to even gain GDP growth of 0.1% while sharing the same fiscal policy and interest rates with Germany. This economic difference is threatening the euro currency and the EU as a whole. We would have to look at how things play out this year.

Thirdly, we have to look at the world's largest economy, while it struggles to reduce it's unemployment rate, it's fed policy is not doing any good for other economies. The US Fed, in October, introduced Quantitative Easing round 2 or QE2, and pledged to inject $600 billion into the economy for the period of six months to help stimulate the economy and reduce unemployment. However, this stimulus is likely not working and is being criticized by other governments that the Fed that it is trying to devalue the USD, while calling for other governments especially China to allow its currency to appreciate. while this war is likely to continue, USA is not out of the woods yet, so we have to be very cautious before investing.

Finally, technicals suggest that some asset classes are overdone, in other words, oversold or over bought. The Australian dollar, the kiwi and Canadian dollar are 15 to 30% oversold, technically, so any thing bad about these countries would suggest a reversal in those currencies. The Japanese Yen is increasing in value for no reason. Gold is oversold, but as long as the Feb keeps injecting money into the economy, and the Euro zone doesn't look like it will improve, then gold is likely to increase in value. To buy gold, I would suggest a correction before we see further increases.