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.

ForexTradingLog.com is a website dedicated solely to the topic of short term forex trading. Forex is an industry term for ‘foreign exchange’ and involves profiting from regular international currency fluctuations. In this blog we examine what makes the currency markets tick - what trigger makes the dollar move, what to look out for and possible trading strategies. If you enjoyed reading this forex blog, you may subscribe to be notified about future updates at the subscription form in the top left of the page.

Australian Dollar Strengthens

The Australian Dollar strengthened after a three day losing streak after a government report revealing a rise in home building approvals, climbing twice as much as economists have expected in November 2006 figures show. The report caught forex trader’s attention and have increased bets that the RBA (Reserve Bank of Australia) will lift interest rates this year. The Australian dollar traded at about 78 cents at 5pm Sydney time compared with late New York trade last Friday night to lows of 77.88 cents. Recall that the Australian dollar reached 22 month highs on January 3 of 79.80 cents. Currency traders see about a 60 percent chance that the RBA will increase interest rates by mid-2007 compared with 48 percent late last week according to the 30-day inter-bank interest rate futures contracts. The three day drop in the Australian currency was largely due to two factors, a drop in commodity prices and last Friday’s strong US jobs data. Employers in the U.S. added 167,000 workers last month, following a 154,000 increase in November, the government said last Friday. Meanwhile, today’s building approvals figures from ABS (Australian Bureau of Statistics) have revealed that the number of approvals to build or renovate houses and apartments rose 4.1 percent from October to 12,739. The performance of construction index rose 4.5 points from November to 52.1, the Australian Industry Group and Housing Industry Association said in a report released in Canberra today. A reading above 50 indicates the building industry is expanding.

Australian Dollar Searching for Bottom

Another day of trading the Australian Dollar… plenty of action for day traders. The Aussie spent the day searching for a bottom. The chart is a 2 day 1 minute chart. After falling sharply from highs of 7980 the dollar is falling back to a reasonable price. Plenty of opportunities to short the dollar over the past day or so. Earlier today the dollar bounced off its current support - around the 7810’s 7820’s… and right now - at 7pm Sydney time it is in a trading range between 7820/40. The dollar fall seems to have lost momentum over the past 24 hours so the Australian dollar is now seaching for the bottom which could be where it is now. If you are bullish, time to go long, if you think the dollar can still break current support then go short.Some traders reckon the dollar can recover by next week back up to 79 cents. If the economic data released next week is conducive then there is a high probability that it will. The main fundamental cause for the Aussie dollar declaine is the stronger US dollar which was energised by a rise in inventories and an increase in November of the US non-manufacturing index. However in New York trade later tonight, the December non-farm payrolls will be released - might send the dollar moving again. The Australian dollar hit a low ofUS$0.7813 cents today.

Local Australian data to watch out for next week: November building approvals at 11.30 Sydney time. (Economists say they expect a 2 percent rise which compares to a fall of 7.5 percent in October 2006. Next Thursday is December’s employment data, which may influence the Reserve bank’s rate decision on the 7th of February.

Aussie Dollar Reaches Highs

Happy New Year to all my readers! I hope you have a successful year in your forex trading. It has only been 4 days into the new year and we have seen the Aussie dollar pass the resistance it was grappling with in the final days of 2006. The Aussie dollar has reached highs of up to US$0.7980 cents yesterday - even with no apparent economic data. Oh boy - but once some economic data came out of the US, reality came back to the trader’s heads and the dollar started falling… sharply. At 5pm this afternoon, the Aussie dollar had fallen down to 79.10 cents from 79.80 cents (The charts above and below are two day 1 minute charts). And at 9.23pm the dollar fell even more down to 0.7836. Note 0.7980 as a strong resistance point in future, just as how 79.10 acted as support in today’s fall for a few hours before falling sharply. Anyone who was long as a result of listening to all the talk about the AUD/USD pair making it to 80 cents this year are acting way prematurely. The market needs to see a little more proof before it is a sure bet.

It was a surprise for me to see the Aussie dollar rise so much without so much as any piece of economic data. John Kyriakopoulos from the NAB said that the rise was due to, thin trading, lack of data and favourable carry trades. He reckons fair value for the aussie is somewhere in the US$0.7770 cent range. The US dollar was stronger across all currencies overnight as US manufacturing data was especially strong. Also, Federal Open Market Committee’s (FOMC) December minutes decreased trader’s expectations of a near-term U.S. rate cut. Sue Trinh, a currency strategist at RBC Capital Markets says that, “I wouldn’t rule out a move to US$0.80 in the short term. A break above US$0.80 should generate an unencumbered rally towards US$0.8200.” She’s been really bullish about the dollar for a while now (depends what her definition of short term is…). I would expect the dollar to consolidate in the next few weeks.

Australian Dollar - Final Trading Day of 2006

The Australian dollar has finished the final trading day of 2006 on a high note. The Aussie held onto a the recently broken resistance level of 79 US cents today even with a thinly traded market which lacked momentum. “There is demand for the Aussie out there but it feels like month, quarter or year-end demand rather than genuine demand,” said Robert Rennie, currency strategist at Westpac Bank in Sydney. The Australian dollar hit a high of US$0.7915 in New York trade with the aussie maintaining its strength in the New York session. The Aussie was weaker against the New Zealand dollar falling from NZ$1.1219 to NZ$1.204. The Australian closed the final trading day at 79.12 US cents up from 78.69 US cents yesterday. The Aussie was also stronger against the Japanese yen from Y93.39 to Y94.10. Locally, the forex market ignored private sector credit numbers showing credit to the Australian private sector rose seasonally adjusted 1.1 percent in November. There is no local data in the first week of 2007, until January 8 when building approvals, retail sales, trade balance, consumer sentiment and employment figures are due in the same week. Interest rates the main focus, with the heavy economic data flow during January 2007 will build momentum ahead of the Reserve Bank of Australia’s (RBA) board meeting in Sydney, February 6, 2006. In the US next week ISM December manufacturing index is due on Tuesday, November construction spending on Wednesday and December non-farm payrolls on Friday.

Some traders are tipping a take profit position on the Australian dollar. With the Aussie hitting highs. The dollar may hit 80 cents in the coming weeks, but for wary traders, perhaps now is the time to take profits with the Australian dollar moving strongly from 78.40 cent level to just above 79 cents in the last week. Note the strong resistance for the AUD/USD currency pair around the highs of 79.33 cents. Any break against the stubborn resistance level would show a upward break toward the highs seen in February 2004. Any hold below the resistance would mean the dollar to hold the trading range all the way to the lows of 77.82 US cents. A downside break below that level may reveal lows to levels of 76.30 US cents.