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Micawber revisited

The March 2010 Current Account numbers released today by the Australian Bureau of Statistics are a continuing testament to how Australia is impoverishing itself:

The increase in foreign debt caused by the persistent current account deficits has to be serviced.  In 2008 and 2009 Australians had to come up with just under AUD 40 billion in interest payments alone to meet its foreign debt obligations.  If interest rates go up, as they must eventually, Australia is going to find it hard to service its debt and maintain its high standard of living.

Even though a lot is being made of the improvements in our terms of trade, we will never earn enough on our trade account to pay back this debt. Now, with the government also going into debt, the situation is at risk of getting worse.  We live in a world where debt is increasingly becoming a dirty word, and we have loads of it.

The implications are dire for the currency.  The AUDUSD chart shows one current EWT interpretation which suggests that this 0.8500 area maybe the terminus for this bounce from the .8070 lows of last week.  If so a push down to 0.7500 could be imminent. 

Position wise I'm short AUDUSD but will exit if .8600 breaks.

Elsewhere the Detma model is fully positioned for the deflationary risk off trade.  That is, it is long USD and JPY.  The JPY in particular needs close watching.  It has drifted back down to around 91.50 versus the USD but as we have discussed before, the accidents with the JPY tend to be on the upside.  With Detma 100% long JPY the conditions maybe in place for another accident to occur.


Disclosure: short AUDUSD