Aussie strength is the idea that the global recovery, led by China
The background theme for Aussie strength is the idea that the global recovery, led by China, is underway. I read an article in the Wall Street Journal just this morning about the levels at which the Chinese are buying commodities, which is bringing about serious questions of its sustainability.
If this trend slows in the near future, which I do not think it will (and I will explain this below), the Aussie could be in for a very sharp adjustment lower across the board. Chinese trade numbers are still off sharply for both imports and exports on a year over year basis.
Now, while the vaulted WSJ might believe this trend will burst eventually, sooner rather than later as they said, I am finding it difficult to swallow. Here is why: The Chinese have been consuming commodities at an alarming pace for their building, this is how they are stimulating their economy. But back in March I wrote about how the Chinese are also buying up commodities using US Dollar (Yes, I know I promised I but cannot resist mentioning the Greenbuck) while at the same time making public calls for a change in the global reserve standard.
Essentially, China is swapping Dollars for tangible items – and while the WSJ uses the import and export figures to assume that their consumption has to end – I am looking at their 2 Trillion Dollar reserves and saying, they are swapping paper for copper and oil and gold and iron because right now, there is not option other than the dollar – except real stuff.