The Aussie has had such an incredible evaluation in the last year that I openly am concerned about buying in at 93 US cents per Aussie dollar. Nevertheless, the signs continue to support the argument that the Aussie dollar will either stay where it is or continue to appreciate a bit. The reasons are several. Firsty, the export machine of materials to China support strong macroeconomic fundamentals such as reserves, tax receipts and current accounts. That supports currencies which is why the commodity currencies such as the Canadian dollar, the Swedish and Norwegian Krona have done well. Secondly, Australia’s inflation rate for the three months to the end of March rose to 2.9% from 2.1% for the last quarter of 2009. This means a rising interest rate environment will continue to draw money looking for the “carry trade”, which is exactly what our clients are doing. We take USD that is earning 1 tenth of 1 percent or 10 basis points and place in Aussie that is getting 4.32%. Big difference! Many clients called me today concerned about Euro cash positions or Euro denominated assets. Our Euro positions tend to be relatively small since the tendency will be for the Euro to stay flat or weak in the near future. However, our primary goal with buying competing hard currencies is to hedge them against eachother to protect the mechanism of cash to store value that is waiting to be invested in equity…not to speculate in foreign exchange.

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