Currency speculators are predicting the next big crash to be the Australian dollar. More evidence is mounting that the 2009 outlook for the dollar will weaken dramactically against the greenback. Said Citiroup out of Hong Koing. “Given the nature of the worsening global economy and the economic outlook for China, Australia’s biggest trading partner, we predict that the Australian dollar could fall as low as 57.00 cents against the greenback”.

Australia’s dollar to weaken further in 2009

Currency speculators are predicting the next big crash to be the Australian dollar. More evidence is mounting that the 2009 outlook for the dollar will weaken dramatically against the greenback. Said Citigroup’s head of finance David Symett out of Hong Kong this morning. “Given the nature of the worsening global economy and the economic outlook for China, Australia’s biggest trading partner, we predict that the Australian dollar could fall as low as 57.00 cents against the greenback by June 2009, possibly collapsing to sub 50 cents”.

Australin dollar plunge 2009

Bloomberg: Australian financial outlook grim, dollar will plummet in 2009 against the greenback.

A rapidly growing money supply into the US and Australia, at the same time the biggest credit bubble in 25 years bursts makes for a less than desirable scenario – one that could make the stagflation of the ’70s look like a walk in the park. In March 1975, industrial production fell by nearly 13% while the yearly rate of CPI growth jumped to around 12%. It took another seven years and a second recession before the U.S. was able to break from the stagflation cycle.

What we are likely in for now is an unprecedented period of price inflation, economic depression,  in Australia and high unemployment, i.e., not just stagflation but depflation (inflationary depression).

Depflation will affect the entire population, and its effects on people’s personal finances will manifest in multiple ways.

• Purchasing power declines as prices for consumer goods increase faster than wages.
• Taxes levied on businesses and individuals increase when nominal incomes rise.
• Late recipients of new money incur cost of additional hidden tax.
• Cost of money (interest rates) increases, hurts investments in capital goods, stocks and bonds.
• Once expectation sets in, it becomes a self-feeding phenomenon, taking years and a severe recession to work itself out.

Just like a shot of adrenalin administered to a sick patient generates an apparent revival, only to have the patient collapse as soon as the injection wears off, the artificial monetary injections by the Fed will do the same. Paraphrasing former Fed chairman Paul Volcker, “Once you have a little [monetary] inflation, you need a little more”. As with any medicine, its effects wear off and become less potent the more “injections” are received.

At this stage, your primary goal should be asset protection. Once that is in place, you will be in a better position to hunt for the opportunistic profits one can only find in times of crisis.

“Currency speculators should brace themselves for massive plunge in the Australian dollar versus the greenback” said Citigroup today.