Aussie isn't weak, it's just the Greenback on Viagra

SPARE me stories about a weak Australian dollar: it's not. Trading around US98¢, the Aussie is 3 per cent higher than it was a year ago and 63 per cent higher than when the GFC smashed it in 2008.
So we're off 11 per cent from our brief August high of US$1.10 - big deal. The Reserve Bank's trade-weighted index at 72.3 is exactly the same as September 23, 2010, and down just 6.8 per cent from its peak. With any sort of perspective on the Aussie's journey, trading a few cents either side of parity is strong. Doing it when most of the developed world is having conniptions about the possibility of the financial equivalent of a nuclear winter is absolutely amazing.
Headlines about a ''weak'' or crashing Aussie just demonstrate that it's human nature to have the attention span of a gnat. Or do gnats accuse each other of having the attention span of a human?

Also, as usual, we tend to think it's all about us. Part of the Aussie's rally came from our economic credentials - our terms of trade, status as a China proxy, a strong, growing economy with relatively high interest rates. But a large part was just the flip side of the US dollar's weakness - a faltering economy, very low interest rates, massive and growing government debt, the government wanting a weaker currency, the Federal Reserve printing money, political paralysis and a bleak decade or so ahead.
None of those fundamentals has changed, so before thinking the Aussie has gone flaccid, consider that maybe the greenback has slipped a half tab of Viagra.
What has happened is another panicked flight to the supposed safety of US government bonds. With the International Monetary Fund, World Bank and pet shop parrots all talking up the danger of another financial crisis, big institutional money has been scared into remembering what happened when financial markets froze: the only asset with deep liquidity, the only thing that could be reliably turned into cash, was a US treasury.
So off the herd has trotted to buy T-bonds, pushing up the greenback in the process and, to the extent that they have had to sell other assets to buy the bonds, pushing down the price of everything else. Never mind the Aussie, gold last week dropped 10.7 per cent and silver plunged 35.7 per cent.
The corollary is that, should the Europeans vaguely get their act together, as markets began to hope on Friday night, the panic buying of T-bonds can reverse. There's not much fun holding a US-dollar asset paying very little interest.
Sourced from Sydney Morning Herald