Are Risk Currencies An Indicator For Future Equities Trends
January 26, 2010 8:48 PM
In the last year, the Aud-Usd Index has moved up in lockstep with the U.S. equity markets. Are the risk currencies a reliable predictor for the movement of the U.S. stock market?
This week the U.S equities markets rebounded from a significant drop. So called financial gurus and financial journalists predicted that the increase in the index was strictly a short term blip.
I do not make my investment decisions based on the opinions of television pundits. I began to follow the commodities markets for clues. My particular interest is in the Australian Dollar and the Canadian Dollar, since the universal market debacle. I noticed that these markets, when compared to the U.S. dollar, were precursors of a worldwide financial rebound.
While the goods produced in these two countries can be a very important economic indicator, the most significant fact was the movement of money to higher yields. When the Aud-Usd rose above the .7700 area in May '09, this was a signal that worldwide markets were becoming more attractive to investors and would begin to draw incoming investment funds.
While other markets fluctuated within wide trading ranges, the Aud-Usd continued to move on up. Thus came the realization that the worst of the worldwide recession was over and it did not effect Australia, and stocks continued to slowly and steadily increase in value.
But the final straw for the U.S. Dollar was the decision by the Reserve Bank of Australia to increase their benchmark interest rate, in October 2009 which shortly after pushed the Dow Jones Industrial Average to their highest levels in twelve months, reaching prices that economic journalists had believed were no longer attainable, given the current economic enviroment.
If that is not a reliable predictor of the U.S. equity markets, give me a better one! I don't have any idea how far this rally will take us, but no doubt the Aud-Usd will provide the clues.
Don’t miss out on The New York Traders Expo. This is the ultimate opportunity to test out the hottest products and software, and pick up trading ideas and strategies you can implement immediately to increase your percentage of profitable trades!
Register FREE by calling 800/970-4355 and mention priority code 017068 or go to The New York Traders Expo
