Roger Nusbaum submits: There was an article last night on Bloomberg about the Aussie going up against the dollar because of rumors that China "may switch out of U.S. dollars to diversify its more than $1 trillion in foreign-exchange reserves."
I have never been a believer that China will sell enough dollars to move the market meaningfully, and I'm still not, but I have expressed concern about the possibility that China buys fewer dollars in the future. The above article theorizes that China would buy more Aussie dollars for several reasons including the fact that it buys a lot of natural resources from Australia.
This is one reason that I have been a believer in the Australia theme for a while and have had client money invested there as well.
There have been stories of other smaller countries selling down their dollar exposure in favor of a more diversified currency reserve. Those countries are small enough that they can sell without much impact. China cannot sell without impact unless they do it v e r y s l o w l y. China owns so many dollars that selling enough to move the market is not in their interests. Of course fear of what they might do could move markets.
But they may buy less in the future. This seems much more plausible to me. Either way this is important to monitor. I would expect Australian investments to do well, Chinese investment should do well for U.S. based investors and other big G-10 currencies should also do well. If China does buy fewer dollars they are going to buy other currencies. Investments from those countries could do well in dollar terms.
Don't lose touch with one.