So now that we can predict the “long term” flow of money…why not jump in the line now and allow all of the other future buyers of Aussie and New Zealand dollars push up our positions in these same currencies over time.
So if I buy any of these (as of the time of this writing): AUD/USD, AUD/JPY, NZD/USD or NZD/JPY then I can enjoy BOTH the money flow AWAY from the U.S. and Japan and the money flow INTO Australia and New Zealand. By capturing both dynamics…my positions ratchet higher over time WHILE at the same time, I’m earning DAILY interest while I wait for further appreciation in the pair. When this strategy works: This strategy works when the global economy is coming out of a recession (past the trough of the recession) and in expansionary times when countries are doing good economically.
When the strategy doesn’t work: This strategy doesn’t work when the global economy is about to go into a recession (or for that matter, usually even when it’s just the U.S. going into a recession).
Since expansionary times last longer than recessionary times, the strategy works, more times than not.
When it’s not working….guess what? Short these pairs and you can make money that way.
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