Exploit a Bit of Aussie Chaos

 | Feb 23, 2012 | 1:30 PM EST
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This commentary originally appeared Feb. 23 at 11 a.m. EST on ETF Profits -- to access all the strategies from our team of ETF professionals, click here.

I've always loved the investing tenet reflected in the mantra "crisis begets opportunity," and one certainly seems to have presented itself in Australia this week. The abrupt resignation of foreign minister Kevin Rudd has suddenly spooked investors, as it closely follows last week's call by Prime Minister Julia Gillard for a leadership ballot amid declining popularity for the Labor Party government. The ballot is an effort to clear the air and nominate a clear leader ahead of elections next year -- but, throw in some name calling and speculation over where key alliances where fall, and the move had all the makings of a good old-fashioned political soap opera.

In any case, the sudden bout of uncertainty in Australia has pushed down the Aussie dollar and depressed bond prices. But, while there are certainly political and economic issues that need to be addressed and worked out, it's not yet time to panic and run for the exits. In fact, the recent chaos has created some intriguing short-term opportunities -- chances to buy promising long-term assets at a discounted price.

Unfortunately for those already invested in these bonds, Aussie-denominated assets have already been slumping. Among these is the WisdomTree Australia & New Zealand Debt Fund (AUNZ), which has dropped by about 2% over the previous two sessions, and the CurrencyShares Australian Dollar Trust (FXA). Each of these is likely to trade lower Thursday after a continued overnight decline in the currency. Again, though, I'll be viewing these declines as opportunities to buy in.

Obviously, a failure to deliver stability quickly could have an adverse impact on the Aussie economy, but I'm betting the drama from the past few days isn't likely to hold for much longer. As tempers cool and the cloud of uncertainty lifts, I expect the recent losses to reverse accordingly. In particular, with a key vote looming early next week, the Aussie dollar could be poised for a bit of a bounce-back from its recent lows. Taking a wider view, the recent developments have also done very little to diminish the economy's bright long-term prospects. Australia's abundance of valuable natural resources hasn't changed, nor have the strong relationships with the resource-craving economies of Southeast Asia.

So watch AUNZ and FXA closely Thursday. If you find prices reacting to the overnight declines in the Aussie dollar, it could be an opportune time to establish a position in these funds that offer access to these assets. Yes, the losses in recent sessions have been moderate, but there is still certainly an opportunity to exploit a short-term overreaction to the recent headlines.

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