The other security we added to the portfolio during the quarter was USD (Betashares US Dollar ETF). We bought this ETF for a few reasons:
- We remain AUD bears. We characterise this as distinct from pointing to the US Fed’s much protested intention to one day… raise interest rates as a reason to be bullish USD / bearish AUD. In conceptualising the AUDUSD currency cross, we think the USD upside is overplayed and AUD / Asian currency downside is underplayed. We see a confluence of factors that should lead to a sharply lower AUD over the years ahead (widening current account deficit, ongoing commodity and investment contraction, reversal of emerging market reserve flows, extremely weak domestic conditions despite protracted monetary easing and currency depreciation; amongst others).
- Wealth is ultimately a relative concept. It is probably an extreme analogue, but there was once a saying “to be as rich as an Argentinian”, in reference to that country’s bountiful commodity wealth. From our perspective, a trip to the US just got ~40% more expensive in AUD terms and we can envisage a world where the AUDUSD cross is ~0.50 without too much difficulty.
- The ETF in question has fairly decent construction (physical replication, no leverage, well known custodian and manager). As an ASX listed security this ETF is within our investment mandate and it meets our investment criteria for the portfolio.
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