Rumours are flying that billionaire George Soros has taken a punt on the Australian dollar falling.
Overnight, the Australian dollar fell to as low as US 102.2 cents from US 102.8 cents on the unconfirmed rumours, although it had recovered some of those falls in early trade today. According to media reports, a large number of trades shorting the dollar totalling US$1 billion were placed via Hong Kong and Singapore, with Soros Fund Management believed to be behind the deals.
The Reserve Bank of Australia is due to make an announcement on the official cash rate at 2.30pm today, with economists divided about whether the Central bank will cut rates. A fall in the cash rate is likely to result in a fall in the Australian dollar – as it becomes less attractive as an investment play.
Compared to many other countries, Australia's relatively high interest rates have attracted billions of investment dollars, propping up the dollar, and keeping it above parity with the US greenback. Earlier this year, investment bank HSBC found the Australian dollar was the most overvalued currency in the world.
Generally, as prices for our major export commodities fall, the Australian dollar tends to follow suite, but because other economies, like the US, Europe and Japan face lacklustre growth and very low interest rates, "the Aussie" has almost become the de facto go-to currency.
But our currency is now facing several headwinds, both local and international. Our dependence on the growth of China as our biggest trade partner, which appears to be slowing, as well as severe negative conditions in our building and retail sectors, could see the RBA cut interest rates as early as today.
Foolish takeaway
Mr Soros famously shorted the British pound in 1992, earning around US$1.8 billion profit for his fund. It's commonly known as the day Soros 'broke' the Bank of England. Now it could be the RBA's turn.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
