Australian dollar will jump as China keeps growing: Gottliebsen

To understand the dramatic moves that are taking place in the Australian currency and share markets, don’t look to the Wall Street gymnastics – keep your eye on China instead.

It’s important that Australians understand that they are now the ‘safe’ way to invest in China as research by HSBC has shown that both the Australian dollar and Chinese electricity production – the best measures of what is really happening in China – are the same graph.

Yesterday there were some very bullish words coming out of China for Australia. The first was actually from Premier Wen Jiabao. On the surface Wen’s remarks sound a tad frightening. He said: “We must clearly see that the foundations of the recovery are not stable, not solidified and not balanced. We cannot be blindly optimistic.”

He then goes on to say: “Therefore, we must maintain continuity and consistency in macro-economic policies, and maintaining stable and quite fast economic growth remains our top priority. This means we cannot afford the slightest relaxation or wavering.”

If you had any doubt as to what was going to happen, central bank adviser Fan Gang underlines that China’s growth will continue at 8%.

And of course, as we all should understand, unless China grows by at least 8%, it faces severe unemployment pressures. The latest slump and the events in western China have shown just how socially dangerous that can be and Premier Wen and his colleagues will now leave nothing to chance.

What made the Premier’s remarks so dramatic was that there has been overproduction of steel and stockpiling of minerals leading to markets fearing an imminent reversal. Premier Wen and Fan Gang have since calmed those fears.

So let’s put ourselves in the position of a global investor who believes the HSBC research (which is backed by the BNP Paribas). Given that Chinese electricity production is likely to grow by 8%, the Australian currency will also expand by 8%, which would take the Australian dollar over 90 US cents.

That is overly simplistic and, along with China, our ride will be akin to a rollercoaster. However, you can see the forces that were mustered in our share and currency markets yesterday on the back of China sentiment.

When I explained that Australians have become the “Irish of Asia” with sinister connotations, I underlined just how much work is required on all sides first to get Australians to recognise what has happened and to highlight that we need to develop a much better mutual understanding between Australians, Chinese and Indians.

Tonight I will be talking to a group of people whose operations are closely connected to the currency and Australian growth. The first thing I will discuss with them is just where Australia stands.

Meanwhile, for those with superannuation funds invested in equities, it’s “Go China”.

This article first appeared on Business Spectator.