Steen Jakobsen, forecaster & chief economist at SAXO, one of the foremost leading Danish Banking Institutions, has made the bold though welcome if not cheerful prediction that the Australian Dollar could ride the 2016 last quarter on the back of a Donald Trump victory parade conceivably matching the U.S dollar cent for cent within 6-12 months. A rather neat theory based upon Jakobsen view that a Trump presidency is only a hair’s breadth away thus potentially giving rise to a sluggish, mild downturn in US rates rises mirroring the comparatively healthy period of low interest rates on Australian shores. The suggestion being a parity on the near horizon.
Australian Dollar May Trump USD
The chief economist was quoted as saying “I think people have to make themselves aware of the fact that the next 100 basis point move from the RBA will be on the upside, meaning that the interest rate cycle in Australia is flattening out”. Uncertainty over the U.S political scenario in tandem with the possible threat/process of trade sanctions layered over rising sentiments of anti-globalisation makes for a signpost heading straight to hell and highwater? A U.S dollar facing real turbulence over the weeks and months ahead. “They (the U.S) started the year by threatening, even promising, guaranteeing us they were going to hike interest rates four to five times. They’ve done zero” insisted Mr. Jakobsen. Looking forward a mere 3-5 years the forecaster considers Australia a safe haven on the grounds that the country presently enjoys in GDP per capita terms a resilient and deceptively strong economy.
Not unexpectedly in a time of market fluctuation China raises its servile head at the inopportune moment. With a G-20 in full swing the quiet talk about the devaluation of the yuan earlier this year travels in stark contrast to a fresh and unanimous agreement that the policy of weakening your own currency to facilitate certain gains will no longer be permitted. Recent statistics revealing China’s current productivity rate at 20% of the U.S equivalent. In this regard Steen Jakobsen proposes “Trump will be good, the alternative of doing nothing.” And as far as the Federal Reserve is concerned many believe the FOMC(Federal Open Market Committee) again will be slow to act meaning little impetus for the U.S dollar through an unpredictable short term.
If Trump takes The Whitehouse suspected fall out could trigger a call for an immediate reinstatement of ‘Glass Steagall’, a corporate defense initiative designed to divide commercial banking activity from that of investment banking. In some financiers eyes a step backward involving the addition of further regulatory framework in a landscape already heavily burdened with regulation while those opposed view it as a necessary evil, if you like, to eliminate the all too rife profiteering of a financial industry too comfortable with the practice of blazing its own trail, setting markers and following its own lead. Steen Jakobsen himself pines for the days of boutique finance when if you required the services of an M&A (mergers and acquisitions) outfit, you invariably contracted the services of a specialist. Consulting with the experts has long been the Australian way and a parity with the U.S dollar would be a resolute step in a finely balanced yet celebrated direction.