Australian Dollar ETF Tumbles as Soros, Druckenmiller Turn Bearish
May 15th 2013 at 10:11am by John Spence
CurrencyShares Australian Dollar Trust (NYSEArca: FXA) is down about 6% the past month with noted investors George Soros and Stanley Druckenmiller turning bearish on the commodity-driven currency.
“We think the Australian dollar will come down and will come down hard,” Druckenmiller said at last week’s Sohn Investment Conference, Bloomberg reported. “It’s expensive.”
Druckenmiller earned $1 billion for Soros as his chief strategist by betting against the British pound in the early 1990s, one of the most famous currency trades in history.
Reports have also surfaced recently that Soros has a $1 billion short bet against the Aussie dollar.
Earlier this month, the Reserve Bank of Australia lowered the official cash rate to 2.75%, the lowest level in a half-century. [Australian Dollar Sinks on Rate Cut]
Druckenmiller said he expected the Australian central bank to lower interest rates even further, which will weigh on the value of the country’s currency, according to WSJ.com’s MoneyBeat.
FXA measures the movement of the Australian dollar against the U.S. greenback. The currency ETF was on a seven-day losing streak before a slight bounce Wednesday morning.
In recent years, the Australian dollar has strengthened significantly “because of strong commodity exports to Asia as well as fiscal and monetary stimulus measures of the U.S. government,” Morningstar analyst Michael Rawson writes in a profile of the currency ETF.
However, FXA has weakened the past few months along with commodities and as China’s economic growth slows.
“Because of its higher interest rates, Australia has traditionally been a target country for the carry trade, in which traders borrow in countries with lower interest rates and invest in countries with higher interest rates such as with the Australian dollar,” Rawson notes. “Despite recent interest-rate cuts, Australia has the highest benchmark borrowing cost among major developed countries. Because of the Australian economy’s heavy reliance on mineral wealth, its currency often rises and falls with commodities.”
CurrencyShares Australian Dollar Trust
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.