In the past three months, Australian dollar has fallen 29 percent against the U.S. dollar and 31 percent against the Japanese yen, but I think it may be getting oversold. The Aussie dollar has been affected by global financial turmoil, but its economy may weather the storm a bit better than others.

A slide in commodity prices has also had an impact on the currency, as the resource-rich nation benefits from higher priced commodities for export. However, there is some speculation Chinese demand for Australian products may offer some support.

In general, I don’t think Australia’s economy (and particularly its housing market) is as bad as that of some other nations. The International Monetary Fund (IMF) said it expects the Australian economy to grow by 2.5 percent in 2008 and 2.2 per cent in 2009, considerably higher than the growth outlook for most other advanced economies.

Australian Treasurer Wayne Swan said “the Australian economy is not immune from the global difficulties which are slowing the world economy, but we are better placed than most other countries to withstand the fallout. The IMF commends Australia’s economic management, noting that our sound fiscal position will help provide a buffer against the slowdown in the global economy.”

Along with other global financial market interventions announced this week, Australian Prime Minister Kevin Rudd said the government will guarantee all deposits with financial institutions for the next three years, and will also guarantee all “term wholesale funding” by Australian banks operating in international credit markets. He said the nation’s financial system and its economy remain “strong.”

You may want to consider buying calls in the Aussie dollar as a way to diversify your portfolio. I currently recommend the December Australian 72/75 call spread, which expires on December 5, 2008. Your cost would be about $1,387 plus commission charges, with a potential profit $3,750 minus cost you paid for the option and your commissions. CME Group Aussie dollar futures were last trading down slightly at 0.69000.

Feel free to call me with any questions you have about this strategy or others to suit your particular account size and risk tolerance. Ask about our special half-off commissions offer for new clients.

Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.

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