WHAT do Sweden and Australia have in common? If you answered that they both played a pioneering role in the early days of cinema, you would be correct but the judges would probably reject your answer on the grounds the question wasn't in the history category but rather in current events.
The more pertinent answer is Australia and Sweden have become the muscle men of international currency markets.
It is a situation that is likely to persist and to which our corporations and export industries will need to adapt, for there is every indication that a major realignment in world currencies is under way for the medium to longer term.
After two frenetic years of bust and boom, world sharemarkets have paused, awaiting real economic recovery to catch up.
Volatility since has shifted to currencies. And within the past few months, the accepted rules of currency trading have been, if not quite abandoned, seriously modified.
The Australian dollar has always been heavily traded largely because of its exposure to world commodity prices.
With resource prices again shooting higher, attention predictably has focused down under. Another major driver is interest rates. Money tends to flow from areas where there is surplus cash and rates are low to areas with a shortage of cash that pays more.
Australia tends to fall into the latter category. Large amounts of capital traditionally have flowed in to finance our infrastructure development and our export capacity, most recently with the resources boom. Hence our higher interest rates.
The same logic applies to Canada. Where does Sweden fit in?
It is not a resource exporter and has low interest rates, two factors that in ordinary circumstances would confine its tender to the ''exotic'' bin. And yet the krona is on the radar screens as currency to buy.
The reason is that since debt problems emerged in Iceland, Dubai and Greece, traders and economists are re-evaluating sovereign risk and the potential for default.
Risk, an old-fashioned concept that looked to have been defeated in the noughties, is now in vogue.
Money is flowing into countries that have managed their national balance sheets, countries that have low government debt. And that's where Australia, Sweden and Canada get a big tick.
In the past few weeks, the euro has tumbled and the British pound has taken a battering. Huge government debt has begun to weigh on investors' minds.
These crashing currencies have had the effect of boosting the Australian dollar to record highs against the euro and to levels not seen for decades against the pound. Against the US dollar, the Aussie has been hovering around the low 90s for months now. That's strong historically, and it is only likely to strengthen as America grapples with its national debt. Another contributing factor to what is shaping up as an era of prolonged Aussie strength is that our trading partners appear determined to remain undervalued.
Once, a strong currency was a source of national pride. Not any more.
While many politicians mouth platitudes about protecting their currencies, right now, it appears that central bankers and governments in the US and European Union are more than happy for them to fall. A lower currency means better export performance and a chance to trade out of difficulty. Normally, you would run the risk of igniting inflation by allowing your currency to drop. But weak demand and spare global capacity should ensure that does not arise for some time.
Then there is China. The powerhouse of the world economy and the back on which we now ride, China has had the yuan tied to the US dollar since mid-2008. In essence, the world's fastest-growing economy has harnessed itself to the monetary policy of one of the world's sickest economies.
China has been under enormous pressure to allow the yuan to rise just as it did in 2006. And at the weekend, it appeared that was about to happen although officials later back-tracked.
The cheap yuan has given China an enormous pricing advantage and helped it overtake Germany as the world's biggest exporter.
China has used the proceeds of that export boom to amass a $US2.4 trillion hoard of foreign reserves, most of it American denominated.
In recent times, it has been buying Australian currency and investments as it tries to diversify its foreign holdings, again helping to push up the value of our
currency. During the recent profit-reporting season, a host of companies blamed the strong Aussie for a lacklustre earnings result, with the resources sector the hardest hit.
They'd better grow accustomed to it.
