Aussie Dollar rallies against US DOLLAR and GB POUND
The Australian dollar pared some of it recent large losses against the
US Dollar and Sterling. A sharp rebound was probably due after a
dramatic sell off saw the Australian dollar reach 2.38 against the
pound. The current level of 2.33 should hold as a stable level as
traders come to terms with the recent moves.
Concern over a US recession will likely keep the Australian dollar from
appreciating too rapidly in near term expect to see some more Australian
dollar weakness if the mood over the US economy darkens further.
The Aussie dollar takes on further losses against GB POUND and US
DOLLAR as carry trade unwinding picks up pace.
The AUSTRALIAN DOLLAR was subject to a broad sell-off yesterday as it
lost favour with international investors. It has already fallen more
than 7% against the U.S. dollar over the last two weeks, but that
doesn't mean there aren't more losses to come. In fact, some market
experts suggest that this could be the start of a more serious
correction as global growth prospects deteriorate.
"It has been the commodity-related currencies that have typically
suffered when investors have fretted about growth issues," warned Neil
Mellor, a senior currency strategist with Bank of New York in London.
"There is a risk that some of these market favourites could continue to
slip down the league table," Mellor added. Sterling, which has generally
suffered against global currencies has managed to move a full 5 cents
against the AUSTRALIAN DOLLAR.
Continued Risk Aversion causes AUSTRALIAN DOLLAR to drop
Jittery global investors sold Australian dollar positions as stock
markets tumbled worldwide. Speculation of more dire news from the global
banking sector triggered a wave of selling. As usual investor sell risky
carry trade positions which affects the high yielding AUD. This benefits
anyone buying AUD as we head back up to the 2.30 levels against the
Pound and below the 90 cent level to the US DOLLAR. Continued weakness
in the markets will see further AUD weakness.
Sterling falls against the majors but the Aussie dollar is also
pinned down
General risk aversion saw the AUSTRALIAN DOLLAR fall against most of the
majors with the exception of the pound.
Sterling weakness has been triggered by Mervyn King’s announcement that
the Bank of England will have to cut interest rates to prop up a
softening UK economy.
Sterling sank 7 cents against the dollar and is trading around 4 year
lows against the Euro. GBP/AUD is still trading around 2.29 and has been
spared the fate of GBP/EUR and GBP/USD as frightened investors exit
commodity currencies such as the AUD/NZD/CAD. Any reversal of this trend
will see economic fundamentals take the Aussie back to 2.23 levels
against the Pound.
So buy AUSTRALIAN DOLLARS now if you can.
Global credit fears and reduced risk appetite saw major players exit the
carry trade and cash in on their positions. The carry trade acts as an
artificial prop to high yielding currencies such as the AUSTRALIAN
DOLLAR. In its most basic guise traders will borrow low yielding
currencies like the Japanese Yen and Swiss France where the cost of
borrowing is low. The trader will then sell this currency to buy higher
yielding assets elsewhere (ie the NZ DOLLAR and AUD). The trader
effectively gets a higher yield which covers the Japanese Yen borrowing.
This trading is risky in the sense that exchange rates can move
dramatically and wipe out any yield gains very quickly. When traders
feel anxious they sell out of these trades effectively buying the yen
back to cover the loan. This can create a stampede effect as everybody
tries to get out at the same time selling vast amounts of AUD and NZD
and pushing the exchange rate down. The net effect is that the Aussie
dollar is now cheaper until a new wave of carry trade buying pushes it
back up.
The Australian dollar fell from its recent highs against the US DOLLAR
and GB POUND. This can attributed to general risk aversion in the market
as we saw other high yielding currencies sell off as well.
The fundamentals still support a stronger AUSTRALIAN DOLLAR as market
analysts believe there is room for a further two rate hikes from the
reserve bank of Australia. Expect a GBP/AUD range between 2.27 – 2.30
RBA hikes interest rate to 6.75% as expected. Aussie Dollar peaks as
a result
As expected the Reserve Bank of Australia officially raised the
country’s interest rate to 6.75% last night. The 0.25% hike may be the
first of many as the RBA tries to stem the tide of inflation in the
booming Australian economy.
The AUSTRALIAN DOLLAR strengthened against the majors as a result and it
was helped along by the Chinese government stating their intention to
diversify their foreign currency reserves out of the US DOLLAR.
Indications are that further hikes are also in the pipeline.
Further global finance disruptions regarding the sub-prime crisis are
now the only hope for those seeking a cheaper AUSTRALIAN DOLLAR.
Aussie Dollars slips off recent highs as we await another 0.25% hike
by the RBA
On Wednesday, Nov 7 we expect the Reserve Bank of Australia to raise the
base rate by 0.25% to 6.75%.
Sterling has made recent gains against the US DOLLAR and AUSTRA:IAND as
reflected in the chart below. Unless there is a major surprise on
Wednesday we would not expect dramatic movements in the currency pair.
Expect a range between 2.26 -2.28.
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