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Today, Keith used the red tape across global macro markets to book some gains on the short side in our Virtual Portfolio. Within that construct, we’ve covered the Aussie Dollar (etf: FXA) as it is finally immediate-term TRADE oversold on our quantitative factoring. Australia’s currency remains our top Asian FX short idea over the intermediate-term TREND due to the following factors: 

  1. The Reserve Bank of Australia, led by Glenn Stevens, looks to accelerate the pace of rate cuts over the intermediate term as both growth and inflation continue to slow alongside dramatic property market headwinds;
  2. Australia’s terms of trade – which are heavily associated with raw materials prices – will continue to decline from multi-generational highs as both demand for and market prices of Australia’s exports fall (Asia accounts for roughly 70% of Aussie exports, which are roughly 60% comprised of commodities like coal, iron ore, and liquefied natural gas)… the CRB Raw Industrial Materials Index is down -17.3% from its YTD peak;
  3. Mean reversion and Winner’s Risk (i.e. liquidation) remain headwinds on the behavioral side (AUD is the best performer globally vs. the USD since the March ’09 low in global beta – up +55.8%). 

Covering the Aussie Dollar – We’ll Be Back - 1


Covering the Aussie Dollar – We’ll Be Back - 2


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For those who haven’t seen the in-depth work behind our intermediate-term bearish thesis on the Aussie dollar, please refer to the following research notes for more details: 

Darius Dale


Covering the Aussie Dollar – We’ll Be Back - 4