K2 has increased its AUD exposure

Over the past week or so, we feel that the time has come to start to increase our AUD exposure once again. There are a few reasons for this: 1) China’s actions to stimulate their economy, together with the likelihood of a more synchronized global economic expansion, we believe will ultimately result in commodity prices rising. 2) Commodity, equity and currency markets can sometimes move 3‐9 months ahead of when the underlying proof comes through. 3) Over the past week or so, early signs of improvement in commodity prices, especially Oil, Iron ore have been seen – this is viewed as a positive for a higher AUD. 4) Whilst a higher Federal deficit should be AUD negative, it needs to be seen in the light of where the rest of the world are in terms of their own deficits and GDP. On those comparisons – Australia doesn’t look bad. An easier fiscal stance in the May budget could be seen by currency markets as pro‐growth, which is positive for interest rate structures and asset prices.

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