Reflation Investing - Which Currencies Benefit?

Not surprisingly, gold has been a main beneficiary of the trends we see. Because industrial activity is likely to lag in this "recovery," gold being a precious metal with low industrial use, is a barometer of the money being printed. As reflationary efforts take hold, the money is likely to flow to other commodities - we see trends of that already - before possibly reaching corporate earnings. The Australian dollar is highly correlated with the price of gold; we like the Australian dollar as a reflation play because the Australian economy is highly sensitive to the price of commodities; Australia is also a large exporter of commodities to China, the one country that can afford its stimulus plan. Australia is fiscally in much better shape than the U.S., although it also has a high current account deficit. That current account deficit worked against the Australian dollar when commodity prices imploded, but may cause the Australian dollar to have a more pronounced upward move as the world reflates. We like Australia's smaller neighbor New Zealand, especially because the government there has had much more of a hands off approach to the global crisis; as a result, similar to Australia, the New Zealand dollar was harder hit during the downturn, but may benefit at an above average rate in a reflationary phase.

Safe Haven | Reflation Investing - Which Currencies Benefit?

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