Are you ready for the interest rate cutting cycle in the US?
Australian stocks have rallied hard in preparation over the week, jumping to a new all-time high.
Gold had a great week too. It looks like investors have finally cottoned on to the fact that the uptrend in gold may continue. I show you a mid-sized gold stock that is looking oversold in today’s Closing Bell video below.
The US dollar index is teetering on the edge of major support at 100.00.
Will a continued downtrend in the US dollar be enough to stop the rot in commodities? China’s property woes continue to weigh on iron ore, copper and oil.
The Aussie dollar has been treading water for the last couple of years. But as US rates fall and Australian rates hold steady, the Australian dollar could jump.
I show you the current state of play in the Australian dollar in the video below.
I compare the past thirty years trading in the Australian dollar against our terms of trade and the interest rate differential between Australia and the US.
It is clear from the chart that I show you that interest rate differentials trump the terms of trade as far as predicting moves in the Australian dollar.
That has worked in the favour of stocks like BHP Group [ASX:BHP], Fortescue [ASX:FMG] and RIO Tinto [ASX:RIO] over the last few years as the Australian dollar remained weak while the price of their commodities were strong in US dollars.
But that situation is reversing. Not only are our terms of trade starting to trend down, but the Australian dollar may rise as the US cuts rates, and the RBA remains on hold.
That could see further weakness in the share prices of the stocks mentioned above. So if you were waiting for your chance to jump on them during this correction, I reckon you should hold off and wait for lower prices.
I warned you about the coming fall in iron ore stocks in May this year, just before the serious selling began. I will keep an eye on the situation and let you know when I think it’s time to start grabbing a few shares again.
If you want to understand how I analyse markets at a deeper level then make sure you have a read of ‘The Lessons’ which gives you six of the key lessons I have learnt about trading over the past thirty years.
You will learn how I use mean-reversion to get into no-lose positions. How traders’ mistakes can help you get into winning trades. And how taking part profits along the way helps you to sleep easier at night.
In today’s Closing Bell I look at the US dollar, the Australian dollar, and an oversold gold stock.
Regards,
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Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps
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