The Nasdaq 100 Record High Faces Resistance, AUD/USD Turns to RBA Next? The S&P 500 and Dow Jones Index are going nowhere near their all time highs this year, and it looks like the Nasdaq may hit one record level before the end of the year.
Australia’s economy has been hit hard by the global recession. Our trade deficit is at a record high, the Australian dollar is strong against the US dollar and we have a strong currency, the Australian dollar is the strongest of all major economies in the world. This means that we import more than we export, which is good for the Australian economy, but it also means that our trade deficit keeps growing. We are currently trading above 3 trillion dollars every single month.
So what will happen if the US Federal Reserve raises interest rates to their historic lows of recent years, and if Australia’s dollar starts to depreciate against the US dollar and the Australian economy continues to expand its trade deficit. In this scenario, the Nasdaq will probably follow suit, and the S&P and Dow will continue their downward trend.
Many people believe that the Australian dollar is currently overvalued because of the high level of government debt, but there is also very little money being made in Australia and many of the banks are actually losing money on their loans to overseas customers. The banks are still holding many Australian dollars, but they are holding them in safe deposit boxes as opposed to being in a currency market.
When governments or central banks begin printing money in order to fund deficit spending programs, the money they print will flow through the economy like a river, and the central bank or government that is printing the money will use that money to buy up assets in order to secure its position in the market. Once the central bank starts buying up assets, demand will grow, and the price of those assets will increase in the market.
As the central bank or government that is printing the money starts buying up assets and creating more supply of currency, the prices of currencies, both domestic and international, will start to depreciate. In a situation like this, as the prices of the commodities that most people invest in start dropping in the market, the marketplace, they will become less valuable as people realize that they can’t hold on to the money they have created out of thin air.
The other possibility is that the Australian dollar and the S&P and the Dow will start falling against the US dollar as the Australian economy continues to expand its trade deficit and central banks continue to buy up assets in the economy. However, if the Australian dollar continues to depreciate, it would be a bad idea for investors to hold their Australian dollars because they would end up paying higher costs on their investments as the value of the currency declines against the US dollar increases.
It’s important to remember that central banks aren’t always predictable and that some people in the markets think that the Federal Reserve will keep rates low, so it would be a risk to invest in a variety of assets that are in safe-deposit boxes, such as bonds, stocks and treasuries. However, central banks tend to change their policies on a regular basis, so it could be difficult to tell which way the Fed or the Bank of England is going to go, and it could be difficult to know which way they are going to move on a monthly basis as well.