Strategist: Investors should buy the AUD and the KRW

  • By Luke Andresen

  • December 31, 2018
  • 8:25 pm BST

Canadian Imperial Bank of Commerce Currency Strategist Patrick Bennett has said that investors should buy the AUD now, describing this as his best trading advice yet. This is despite the fact that the AUD is currently taking a hit due to what has been happening in the markets. With a gloomy global outlook, analysts believe that it will take time before forex trading professionals with an AUD focus find some form of reprieve.

The Australian dollar is an undervalued currency

Bennett, however, believes that the trade conflict between China and the United States will reach a resolution, leaving the AUD in a better position in the coming year. He also thinks that the currency is set to strengthen under these circumstances. With this in mind, he noted that it is best to invest in the AUD presently to take advantage of its growth.

Bennett, who deals in foreign exchanges, said: “The Australian currency is very undervalued at these levels.” He added that the currency is a proxy for the Chinese economy, as the yuan does not trade freely. Bennett also said that the AUD is a good measurement of global risk appetite.

In his recent forecast, he noted the likelihood of the AUD to trade at 77 or 78 cents to the USD by mid-2019. As of Friday morning, the AUD was at 70 US cents. Bennett added, however, that the AUD/USD pairing is not good at the moment and that investors need to buy the AUD against the EUR instead. He also said that it is too early to buy the AUD against the USD considering the current situation in the United States.

In an interview with CNBC, Bennett explained that the American economy is still performing well and that the USD’s decline will only occur in Q2 or Q3 of 2019, when he predicts that the AUD will rise.

Time for crisis investing?

Crisis investing may be the right move for many traders, according to analysts. Seeking Alpha contributor Rob Marstrand wrote in early 2018 that this “involves scooping up cheap assets when fear is at a peak.” Marstrand added that economic meltdowns are excellent times for buying, especially for those who are “brave enough to take the plunge.” He noted that this can lead to huge profits as the markets settle down. While this is sound advice, Marstrand noted that there are certain times when risks of permanent loss become a greater possibility.

The Korean won: A good investment?

As well as the AUD, Bennett said that investing in the Korean won (KRW) is a wise move, as South Korea is seeing strong inflow in its domestic assets compared to other economies in Asia. Bennett is enthusiastic about the currency, and he added that he expects it to “continue to trade stronger.

At one time, this was an unthinkable recommendation considering the South Korean economy’s volatility. However, since the economy has stabilized, buying into the KRW is a desirable strategy once again.

Fears of a meltdown

Fears of a global financial crisis has affected the AUD and its worth. As China is one of Australia’s biggest trade partners in Asia, the AUD saw a sharp decline in the past few days. The tension between China and the United States is partly to blame for this, according to reports, but the slowdown in the American economy due to gradual rate hikes and US President Donald Trump’s “blatant” disagreement with the Federal Reserve has also affected the AUD. This political uncertainty has alarmed many investors, and with AUD/USD forecasts looking bleak, there seems to be no safe haven for traders.

Wall Street recently suffered from a plunge, leading many to speculate that the world is nearing yet another crisis. Some reports said that the next crisis will likely be as bad as the Great Depression. The fact that US Treasury Secretary Steven Mnuchin talked to leading American banks regarding liquidity has caused even more anxiety among investors. According to Wall Street professionals, the talks are too reminiscent of 2008, when the country’s financial markets collapsed due to a lack of liquidity.

Though the markets are not in a panic yet, at the same time that Bennett makes his recommendations regarding the AUD and the KRW, some investors are already starting to sell their assets.. Bennett’s advice is a welcome idea, however, as experts believe that it gives investors a more positive outlook about the AUD. It also effectively reduces the fears of many who are currently wondering if their decision to hold on to the AUD is a good or bad move.