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Is the US dollar back ?

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Is the US dollar back ? [#permalink] New post 17 Sep 2008, 03:47
trader1 and kwam I'd love to hear your thoughts on this. I had converted some AUD to USD (in anticipation of the MBA). But over the last month the USD has grown stronger - a LOT stronger. AUD has dropped from a high of .92 to around .80 in within a month (it has seen some support around the .79 - .80 mark). If you look at a chart - that's a pretty significant turnaround - but not many are talking about this market. (easy way to see the chart is at netdania : http://www.netdania.com/Products/NetSta ... ation.aspx ).

So my question is - if the US economy is so weak and so much doom and gloom is on offer, then why is the USD suddenly rallying ? Is it just market sentiment ?
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Re: Is the US dollar back ? [#permalink] New post 17 Sep 2008, 04:30
From what I understand, it's the belief that the US economy is bottoming out and that Europe and Auz, are yet to feel the full effects (they haven't lowered their interest rates so far so worse is expected to come for those economies). The carry trade is not favourable at the moment due to the jittery stock market, so high yielding currencies are not currently in favour due to the anticipation of rate decreases and the expectation that the Fed will probably increase rates (after yesterdays decision to hold rates it sort of confirms that the interest rate is at or near its bottom). This favours the USD. Furthermore, with oil prices decreasing so quickly recently, the USD has again become the currency of safe haven, so lots of people are piling into it (although gold seems to be rising at the moment too..).

I'm not a finance person (and never intended to go into finance after my MBA) i just have a casual interest in the general goings on... SO expect a lot of what i just said to be untrue :)
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Re: Is the US dollar back ? [#permalink] New post 17 Sep 2008, 06:00
bsd_lover wrote:
trader1 and kwam I'd love to hear your thoughts on this. I had converted some AUD to USD (in anticipation of the MBA). But over the last month the USD has grown stronger - a LOT stronger. AUD has dropped from a high of .92 to around .80 in within a month (it has seen some support around the .79 - .80 mark). If you look at a chart - that's a pretty significant turnaround - but not many are talking about this market. (easy way to see the chart is at netdania : http://www.netdania.com/Products/NetSta ... ation.aspx ).

So my question is - if the US economy is so weak and so much doom and gloom is on offer, then why is the USD suddenly rallying ? Is it just market sentiment ?


I have no market positions anymore since I started my MBA, but thinking like a trader, I would have been buying other currencies which have fallen significantly as the dollar has rallied, i.e. CHF, EUR, AUD, and CAD.

I think the dollar has staged a nice bear market rally and will resume its long term downtrend.
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Re: Is the US dollar back ? [#permalink] New post 22 Sep 2008, 09:39
trader1 wrote:
bsd_lover wrote:
trader1 and kwam I'd love to hear your thoughts on this. I had converted some AUD to USD (in anticipation of the MBA). But over the last month the USD has grown stronger - a LOT stronger. AUD has dropped from a high of .92 to around .80 in within a month (it has seen some support around the .79 - .80 mark). If you look at a chart - that's a pretty significant turnaround - but not many are talking about this market. (easy way to see the chart is at netdania : http://www.netdania.com/Products/NetSta ... ation.aspx ).

So my question is - if the US economy is so weak and so much doom and gloom is on offer, then why is the USD suddenly rallying ? Is it just market sentiment ?


I have no market positions anymore since I started my MBA, but thinking like a trader, I would have been buying other currencies which have fallen significantly as the dollar has rallied, i.e. CHF, EUR, AUD, and CAD.

I think the dollar has staged a nice bear market rally and will resume its long term downtrend.


how's that for a market call? :-D

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Re: Is the US dollar back ? [#permalink] New post 26 Sep 2008, 05:53
Yeah I bought back most of my AUD at ~ .83 :). Now I'm looking for a good time to buy some sterling to help pay fees next year (if I end up matriculating from LBS).

Looking at the daily chart (attached) - my gut tells me do the conversion NOW - GBP seems to have broken its downtrend against aussie. Any thoughts ?
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Re: Is the US dollar back ? [#permalink] New post 27 Sep 2008, 14:09
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bsd_lover wrote:
Yeah I bought back most of my AUD at ~ .83 :). Now I'm looking for a good time to buy some sterling to help pay fees next year (if I end up matriculating from LBS).

Looking at the daily chart (attached) - my gut tells me do the conversion NOW - GBP seems to have broken its downtrend against aussie. Any thoughts ?


If I were in your shoes, I would probably starting buying GBP incrementally in order to start hedging currency risk.

You could also buy a forward contract for AUD:GBP. Again, I wouldn't buy a bunch of GBP at once, b/c you never know if it will keep falling against the AUD. Check with your broker to see what rate they will negotiate for you.
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Re: Is the US dollar back ? [#permalink] New post 27 Sep 2008, 15:06
Exactly what I am suggesting a colleague starting at a European school in January do.

trader1 wrote:
If I were in your shoes, I would probably starting buying GBP incrementally in order to start hedging currency risk.
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Re: Is the US dollar back ? [#permalink] New post 27 Sep 2008, 15:37
How about a GBP/AUD call option instead - since I'm apping to a couple of american schools too, and, may not need the Sterling. Or, is a forward the only feasable choice ?
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Re: Is the US dollar back ? [#permalink] New post 27 Sep 2008, 16:25
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bsd_lover wrote:
How about a GBP/AUD call option instead - since I'm apping to a couple of american schools too, and, may not need the Sterling. Or, is a forward the only feasable choice ?


You could do the GBP call option against the AUD, or buy an AUD put against the GBP. But, now you need to decide on an expiry date. Your determination of an expiry date depends on when you will find out if you get into the other schools. The further out you go, the higher the premium you will pay.
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Re: Is the US dollar back ? [#permalink] New post 29 Sep 2008, 19:23
You need to buy USD, you're going to the GSB :wink: :lol:

Somehow I missed this topic, sorry. I'm not following too much the FX market, and even though the long term trend of USD against almost every single asset is down, perhaps Toga is right, now the spill over, may go to Europe and other Regions and the USD may come back a little. The event today with Fortis showed that European banks will also suffer; however, the ECB will act differently than the FED. I decided to buy a structure a couple of months ago, which is capital protected in EUR and long in USD, basically it's a Call USD/Put EUR structure, but I did so because this would be a perfect hedging for my situation and I'd only miss 8% of interest rate to do that for 3 years (It's not that bad for a retail account).

About options the problem right now is volatility, they are EXTREMELY high; that said, if you have access to Knock-out options, in your situation I'd buy a Call SOMETHING/Put USD, with a Knock-out around 15% higher than At the Money Forward because of 2 things:
1) pay less premium
2) this structure has a time decay (Theta) profile much smoother than a Vanilla Call.

BUT THERE'S ALWAYS THE RISK THAT THE UNDERLYING HITS THE BARRIER AND YOUR STRATEGY VANISHES.

PS - Barrier options are only traded as OTC, and I DON'T have access to those in my personal account, only as an institutional investor, I used to trade a lot of those for Risk Management purposes.
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Re: Is the US dollar back ?   [#permalink] 29 Sep 2008, 19:23
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