Worldwide Markets Influence on the Australian Dollar

Today is proof that worldwide markets influence the Australian dollar. I watched as the Australian dollar fell by a substantial amount today. Why? Well if you don’t yet already know, it all started in China. Stock prices fell in China, then overnight in the USA. Australian markets followed the next day. Looks like the Aussie doesn’t look like a good currency to hold at the moment since the big players are in risk aversion mode. Investors are seeking to unwind their carry trade risk. However a slight bounce today in the forex markets came as economists said that an interest rate hike in Australia in the coming months remains on the table. Today the Aussie currency hit lows of around 78.55 cents compared to recent highs of about 79.50 cents. There is also plenty of economic news coming out of USA overnight such as the fourth quarter US GDP data – any hint of weakness and you know what will happen. Also any signs of rising stress in the U.S. sub-prime mortgage backed debt market might also be a negative influence. You’ve got to remember, there is also the geopolitical risks to consider. There are also the looming ambitions of Iran for nuclear and the US military presence in the region. Tony Morriss, a senior currency strategist at ANZ has said that, “The Australian dollar does not perform well during periods of risk aversion and it opened on the defensive this morning given the size of the overnight moves in stock and commodity markets.”

AUD Volatile Behaviour

I was watching the AUD/USD currency pair over the past few hours and was amazed by the volatile nature exhibited by the minute chart as shown above. So what made the dollar rock to and fro about 30 pips in a matter of hours? Government bonds took leads from US Treasuries which rallied from comments by former US Fed Chairman Alan Greenspan. Also the RBA have also noted that it had recently “stepped up” the selling of AUD in forex markets by purchasing foreign reserves in January. It is also worthy of note that the Australian dollar is close to multi-decade highs with regards to the trade weighted index. At the moment the AUD Trade Weighted Index (TWI) is at 65.2.

Aussie Dollar Hits Eight Week Highs

Interesting to see the Aussie dollar reach eight week highs. This comes on the back of worsening sentiment for the US dollar. Traders expect the road to 80 cents will be rough. Former Federal Reserve chairman Alan Greenspan made comments via satellite link to a Hong Kong conference that it was possible that the US economy could fall into recession in late 2007 adding to the bearish drive in the US dollar. The road to 80 cents will be rough because it is a strong psychological barrier, a barrier previously reached in February 2004 but not broken since March 1997. Keep in mind that the RBA commented that interest rates are likely to remain on hold due to an improvement in the inflationary outlook, the local currency remains well supported. Meanwhile, it looks like the Aussie forex markets have continued to price zero chance of a quarter percentage rise in the interest rates in the next RBA board meeting.

Australian Dollar Range Trading

Looks like the Australian dollar is stuck in range trading mode for the moment.  The support for the Aussie dollar is largely believed to be from the possible further rate rises. The RBA Governor Glenn Stevens warned last week that it was “too soon to declare victory” over inflation, adding that cutting of interest rates hasn’t been recently considered.  Remember that the Australian official interest rates were raised three times in 2006.  So as long as the economic data remains neutral, the dollar seems to be stuck in range trading mode until any piece of data says differently. Energy and metal prices can influence the Australian dollar so watch out for dollar support and pullbacks based on those prices.  Also note the news surrounding the Australian sharemarket.Coles group is considering takeover bids and there is that takeover of Qantas - and international private equity bids means money inflows into Australia - a positive for the Australian dollar.

Government Announcements Influencing Markets

It’s been an interesting day - there has been a few announcements coming from government institutions that are influencing the forex markets. There were two notable announcements/news that was directly influencing the Australian dollar. The first was on Wednesday (21/2) night with Glen Stevens, the Reserve Bank of Australia’s (RBA) Governor said in a statement that interest rates were more likely to rise than fall. He also noted that inflation won’t stay above 3 percent or higher. December quarter inflation was a good figure however while aggregate wages has been well contained, businesses have been telling the bank of upward wage pressures. Stevens also notes that it is hard to see a dramatic rise in unemployment. The second announcement came this evening, with Australian treasurer, Peter Costello saying that inflation is within the RBA’s 2 to 3 percent band and looks set to stay there throughout 2007-08.

Continue reading Government Announcements Influencing Markets…

Australian Forex Over the Past Month

I haven’t been in Australia for the past month, and it’s time to review the forex charts to check out what’s been happening to my beloved AUD/USD currency pair over the past month. Yes, the holiday was GREAT. And Yes, I did keep up to speed of what the Australian dollar has been doing over the past month. How? By checking out local papers and Bloomberg! I would play a guessing game - I would remember the price action - if I noticed the dollar stayed at about the same price for two consecutive days I would note that price as a certain support/resistance area (I didn’t have charts and I only checked the Aussie dollar once a day at most). The guessing game would involve me guessing the next direction, not knowing any fundamental economic news announcements and only knowing the price. Let’s just say I was profitable.

It looks like the Australian dollar had a very interesting month. A lot of money could have been made because there was a lot of forex price action in this pair. Interesting to see a rapid fall on the 24th of January. Looking at my financial diary, that day was choc-a-bloc full of economic announcements: Consumer Price Index (CPI) and other RBA figures. I guess the economic numbers from the CPI didn’t show any need to increase Australian interest rates. The dollar kept falling for the next week until it hit around 77 cents. You had a week to short the dollar! Then the dollar had a gradual rise back up to 0.7817 which it hit on the 9th February. Then the dollar retreats back close to 77 cents. From 13th to 16th, the dollar was steaming ahead, and now the dollar has setup a new trading range, a plateau forming between 0.7850 and 0.7884. Any more hawkish talk about interest rates and the dollar may break this trading range soon.

The forex chart of the Aussie/US currency pair above is from my personal review of the charts. I was trying to strategise on the next move: The text in the graphic reads: AUD/USD Spot: 1 Month/1 Hour “Price action for AUD/USD over the past month with major support/resistance formations noted. MACD indicator notes a BUY signal, while major resistance level at around 0.7884 is present. Any break above that point will extend the dollar’s upside or it may choose to remain in the current trading range.” I roughly noted as the major support/resistance prices as: 0.7884, 0.7850, 0.7817, 0.7786 and 0.7706. What did I do? Went long on the Aussie dollar.

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