Is Soros shorting the Aussie dollar?

Is Soros shorting the dollar?

May 7, 2013 – 9:11AM

Mark Hawthorne

The Australian dollar fell in overnight trade on the back of rumours that billionaire US investor George Soros is betting the local currency will fall.

The Aussie dollar slipped from $US1.0284 in late local trade to as low as $US1.0222 in offshore trade as traders reacted to unconfirmed rumours that Mr Soros – who famously shorted the British pound back in 1992 – was planning a raid on the dollar ahead of today’s interest rate announcement.

The dollar has since recovered some of its overnight losses and was buying $US1.0253 this morning.

A large number trades shorting* the dollar totalling $US1 billion were placed via Hong Kong and Singapore late Monday, believed to be by Soros Fund Management.

“Someone … seems to be betting on a rate cut,” said one Sydney-based FX trader. “I’ve heard the George Soros rumour tonight. A billion dollars sounds like a lot, but it’s not enough to move the Australian dollar and it’s not a lot for George Soros, but there is a play happening  in the FX market.“If it is him, it’s probably a bet on a rate cut. These days a billion bucks can’t do much to the Aussie.”

ANZ current strategist Andrew Salter said he was aware of the rumour of a short position on the Australian dollar, adding that the “appropriate position to have in the Australian dollar is short given the outlook for world growth and the outlook for the Reserve Bank”.

“Our house view for the Australian dollar is for it to remain around $US1.05 to mid-2014. That said, there are building downside risks to that forecast,” Mr Salter said.

The local and international factors that could see the Australian dollar fall towards parity include the level of industrial production in China, which affects commodity prices and Australian commodity export volumes.

Also in play is the possible early peaking of mining investment in Australia, and the outlook for global growth and monetary policy in the US, eurozone and Japan, Mr Salter added.

Earlier this year, a HSBC global valuation found the Australian dollar was the most overvalued currency in the world, using data from from the OECD’s measure of purchasing power parity, The Economist’s Big Mac Index and the Current Real Effective Exchange Rate (REER) as compared to its five-year average.

The Organisation for Economic Co-operation and Development’s measure of purchasing power parity found the dollar was overvalued by 60 per cent. Under the REER, the dollar was almost 12 per cent overvalued, while The Economist’s index found the current was overvalued by 12.2 per cent.

HSBC said in its report that currencies like the Australian dollar were facing headwinds given the so-called currency wars, which had seen countries such as the US and Japan use quantitative easing to lower their currencies’ value.

Mr Soros is a Hungarian-American business magnate, investor and philanthropist, who has built a reputation over the past 25 years of picking the impact of government decisions on currencies and commodities.

In 1992, based on British government policy changes, Mr Soros famously shorted the British pound. He bought German marks, earning a staggering $US1.8 billion profit for his fund. It is known as the day George Soros “broke” the Bank of England.

Mr Soros sold out of gold investments late last year, sparking rumours that he would again be active in global currency markets.

According to reports out of Japan, his investment company has made $US1 billion by shorting the yen between November 2012 and February this year.

Whatever the result of the rumour, it will certainly be better news for Mr Soros – news agency Reuters prematurely declared him dead in mid-April, accidentally publishing his obituary.

*Unlike selling short a stock, an investor can opt to sell a currency at a future date without needing to physically borrow the currency. Rather, an investor can enter into an agreement to sell a currency for a predetermined price on a specified future date.

By contracting to sell one currency, an investor is also contracting to purchase another currency, as currencies always trade in pairs. For example, if an investor entered into a contract to purchase US dollars by selling Australian dollars, this transaction in itself would create a net short AUD position and a net long USD position.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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