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Peso soars as Aussie dollar crashes


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For those from elsewhere the Australian age govt pension is currently A$1164.66 a month. In June-July this would purchase P50,940 (P43) as I type this the exchange is P31.22 now giving a pensioner living in the Philippines P36,360 a month. this is now a drop of P14,580 a month since June-July.

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That's about it Wirraway (from my patchy memory wasn't that an Aust built aircraft in the 40's?) anyway same sort of losses when I bring my funds to Thai from Aust - dropped way way down.. if the exchange rates keep this low with the amount of lost funds, there will be rice & fruit for breakfast, lunch & dinner....

 

:rolleyes:

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Many American investment companies Japanese and European companies appear to be selling off their assets in Australia to get American dollars, yen and euros to shelve up their growing debts in their own countries. As the investment money leaves so the Australian dollar drops. We also in Australia are one of the largest debtor nations, which means we are in for hard times over the next couple of years as the recession bites into our commodities sales. So enjoy life it wont get too much better for a little while longer, I shouldnt imagine.

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Hi Rico, Yes you are correct about the 'Wirraway' aircraft in the 40's

The A$ has dropped against the Baht & Malaysian Ringet at about the same percentage as as it has dropped against the Peso.

 

That's about it Wirraway (from my patchy memory wasn't that an Aust built aircraft in the 40's?) anyway same sort of losses when I bring my funds to Thai from Aust - dropped way way down.. if the exchange rates keep this low with the amount of lost funds, there will be rice & fruit for breakfast, lunch & dinner....

 

:rolleyes:

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  • 2 weeks later...
Hi Rico, Yes you are correct about the 'Wirraway' aircraft in the 40's

The A$ has dropped against the Baht & Malaysian Ringet at about the same percentage as as it has dropped against the Peso.

 

The Yen used to be 100 to 50 peso. Then over the years it went to 100 buying 40 peso. Today It's at 47 peso. Might be burden for many people with these bank problems but it's working for me. I think I did the best thing selling most of my foreign currency. I can make a fair bit investing in peso. More than I ever made in yen thats for sure!

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Currency valuation and trading, like the once a month effects of oestrogen on the female mind, are complex, can be confronting and their knowledge is necessary for survival for the man in the street.

 

So bear with me on this one.

 

The AUD is often described as a "commodity currency" whereas the USD has been called a "trading currency". They make interesting bedfellows.

 

Recall the first law of thermodynamics...energy is neither created nor destroyed (it merely changes from one form to another)

 

One could apply this concept to the flow of money and relative "energies" of different currencies swirling and eddying in the massive oceans of cash that wash around the globe and lap at your wallet.

 

A little history first...

 

The civilised world invented "money" to replace things of value like silver and gold, as an easy medium for trade (then, like now, there just wasnt enough precious metal going around for all that trade - they dont call it precious metal for nothing!).

 

So an early substitute money was copper coins in Roman times, but with the invention of the printing press in the Age of Industrialisation, it's now paper. In the early days paper currency was circulated in "promisory notes".

 

The value of paper money is what the government promises it is worth. It used to promised in gold. That is, the paper money was equivalent to a certain amount of gold by government backed guarantee...the so-called "gold standard". The legal term for a government's promise was a "fiat", so, those 5s, 10s and 20s in your wallet, are also known as "fiat" currency. Each country has its own fiat currency.

 

I'll come back to this in another post cos it's the kicker in the debt crisis.

 

 

But back to the AUD and USD in bed together....the question is: who get's to go on top and when will they do it?

 

 

The commodities of the world (oil, coal, iron, other metals) are priced by agreed convention in US dollars, understandly as it's the world's biggest economy. So the swings and roundabouts of the US dollar have a direct effect on the business of miners here down under.

 

What I'll say here is like me, childishly simplistic, but a basic force in the price movement of commods is: if the US dollar goes up, a tonne of iron is more expensive, therefore harder to sell because it's pricey, so buyers buy less.

 

If the US dollar goes down, the reverse holds. Buyers get more bang for buck, so more is sold and that means more commodity trading turnover, ultimately more profits for the mining company, raising the value of the currency of the country in which the mining company lives as the profits come home (ie AUD, Canadian dollar).

 

Let's look at the implications of this idea on the AUD (I should know this one better as this is the currency of my home country)

 

When there is a recession or anticipation of worse (like now), commodites, their derivatives, commodity equities and also commodity currencies are sold off before the almighty crash, in expectation that when it hits, noone will be around to buy the stuff. After all, it's only worth something if someone will buy it. If noone is there to cough up, it's just a pile of rocks. More supply and less demand.

 

In terms of supply and demand at the higher order level of finance, as giant global funds think there will be less need for commodities, they sell their shares in expectation of less demand. As everyone tries to sell off big slabs of shares in these companies at once, there become more sellers of the shares than buyers, so share prices go down.

 

Thanks to the rise of financial behemoths in the age of globalisation and high speed digital transaction, the speed of the transactions is dramatic and likewise it hits the news quick.

 

This means in the conditions that prevail right now, currencies like the AUD and the Canadian lunie, get a quick roasting.

 

But there's a problem.

 

Right now the US is in deep doo doo.

 

Subprime fallout and the collapse of big US banks means there's a gaping hole in the US financial institutions' wallet where once there was a fat wad of "Collateralised Debt Obligations" and "Mortgage Backed Securities", now as valuable as a collection of fat ladies underwear.

 

Right now, the US government (and others) are printing cash to replace that lost wad.

 

Q: What's wrong with printing money ? (Wish I could! ;))

 

A: Inflation.

 

The effect of printing money is most easily seen in modern Zimbabwe, with inflation at 231 million%

 

Like in the Weimar Republic Germany before WW2, with massive inflation, you can literally need a wheelbarrow of cash to buy commodities (like food) and consumables.

 

So guess what that means for commodites?

 

The tide will turn in favour of real currency commodites like gold first, because it is a form of money which has intrinsic value because it's rare and you can't just just turn on the gold printer and make more. This is unlike paper, which has the same intrinsic value whether you put George Washington's face on it or Dubya's.

 

We have seen a "run on the banks" of sorts in the wake of several big brand name bank collapses on Wall Street. People are worried that they will lose their bank deposits in the US if their bank collapses.

 

Right now, a lot of people have yanked their dough out of their banks and with it they have bought US government Treasury Bonds (T-bonds) hand over fist because the government DOES promise it will pay back the bond and it's yield. This in turn has contributed to the relative value of the USD against commodity currencies like the AUD.

 

So for now, the USD is riding the pony.

 

But.... :P When the big flood of USD cash gushes forth it's "fiat" value will decrease (it is not pegged to gold anymore, therefore no "promise" about what it's worth!).

 

But everything's relative in the world of currency. The AUD will only get back up if there are buyers for it's commodities Commodity prices rise as long as there is a buyer big enough to make supplies scarce enough to drive up prices. Well, ni hao! Lei ho ma!

 

If China (and India) keep industrialising, they will need commodities. So commodity companies should keep making good profits which means commodity currencies like the AUD go up in value relative to non-commodity currencies that are down on their luck.

 

If they crack then the AUD will go to hell in a handbasket too. Like the US, there is a big housing bubble.

 

But for now, buy those sacks of rice and a few pieces of eight too.

 

:P

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Not a bad opinion there Brekky - I do fear for the AUD as the geniuses in Aust Govt have done their best through the years to wipe out manufacturing & other domestic income producing industries, so when commodity prices freefall - dirt, oil, gas so does the AUD and our relative income here overseas..

 

That saying (curse?) of the Chinese "May you live in interesting times" indeed!

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In my unprofessional opinion , because I have made a few bucks in AUD, is 60% of Australian exports are commodities... It will depend now on the demand from China and Asia to see if it lifts in the near future. the AUD has been oversold.

 

that's my take on it .

 

The pendulum has swung.

 

edit, ADDED 12 months will give it time to settle down again or fall into a giant hole!

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Former Liberal leader and economist John Hewson is predicting the $A could drop to 40c US and then trade in the 40-60c US range. A senior economist from Combank is predicting it to settle at around 80c US. So it's no wonder us non-experts struggle with predicting what will happen to the aussie battler.

 

The $A was 7 pesos when I first went to the Phils in 1981. In 1986 it was 13. In 2000 it was 25 pesos. So even 33 pesos is a good rate in historical terms.

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MattFromGA

Back in the 80s the USD was in about 20 php to the USD or so. However, prices have significantly increased here since then. Without a doubt the Pesos, USD and A$ all buy way, way less than they did in the 80s.

 

I think the bottom line for the person that started this thread is that they were barely able to cover the personal expenses with their pension when the A$ was exchanging well with the peso, but not that it has dropped in value, they are unable to cope with the costs here.

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The $A was 7 pesos when I first went to the Phils in 1981. In 1986 it was 13. In 2000 it was 25 pesos. So even 33 pesos is a good rate in historical terms.

In the early eighties you could change one Aussie buck for US $1.10. Now you would be lucky to get US 66 cents according to Bloomberg.

 

And rice did not cost 45 to 50 pesos a kilo back then as it does today. Generally speaking, the cost of living in Cebu City has jumped 50% in the past five years that I have been living here. Makes it difficult for Australian expats on a fixed income, that's for sure.

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I think the bottom line for the person that started this thread is that they were barely able to cover the personal expenses with their pension when the A$ was exchanging well with the peso, but not that it has dropped in value, they are unable to cope with the costs here.

I am the original poster of this thread. The "bottom line" is that the Aussie dollar is grossly undervalued right now.

And now is a good time to buy Aussie dollars. It will climb back up again after the recession.

 

Meantime Australian pensioners here in Cebu will have to cut back and reduce their monthly spending,

as some of their American friends here did last year. :D

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Far East, I suspect we will all have to whereever we are. The US$ will eventually slide and take the peso with it when the credit starts moving again but that will take a while, probably next year. How other currencies pan out only God knows. I suspect the Aussie $ will do better than sterling or the US$ in the long run.

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Ok guys

 

Here's some fresh panic

 

Many of you will know about the de-coupling of gold from currency. The Brits did it to the pound sterling at the time of the last crash and uncle Sam to the dollar in 1971.

 

I mentioned it in my last thread because from my reading it appears to be "kicker" in the debt crisis.

 

True to the thread, there are implications for the aussie dollar and the peso.

 

Firstly, the gold price is dropping hard. Like the sinking titanic up-ended, the mobs flee to the part of the ship up in the air, the US treasury T-bonds.

 

So why is gold dropping.

 

Unbelievably, the price setter for gold in the US has less than 10% physical metal to back up its contracts locked in "gold futures". This is COMEX.

 

It seems people know this and are selling their COMEX ("paper") gold as fast as possible. Because, if even a fraction of people called in their contract and demanded physical metal delivery, COMEX would DEFAULT!

 

This is in contrast to actual metal coins and bars in the shops. THERE ARE NONE! You would think if yellow metal was unpopular, the shops would be full of it.

 

Bullion coins from the Perth Mint I purchased last week will take 3-4 weeks for delivery.

 

A gold coin shop manager told me in Melbourne that if you dont buy soon, you might be waiting 3-4 months!

 

So what does this say about this commodity?

 

Well when the mobs see the ship is going down they'll jump. Printing money leads to inflation. And this should prompt a flight from t-bonds as their value is eroded by massive amounts of new cash flooding the market.

 

That money has to go somewhere. Which leaves real gold and other commodites like oil. Things of real value. Or so the story goes. I must say so far that story sucks badly.

 

But its a sigh of relief for the Aussie when inflation hits in a way, due to the major significance commodities have for the currency.

 

So long as there is a buyer.

 

Otherwise....kaboom

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