posted by 4x-news on May 31

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posted by 4x-news on May 29

Only last year, the idea that the Australian Dollar would ever reach parity with the USD was laughable. Then, earlier this year, it became plausible. Now, according to an informal poll of analysts, it is not only possible, but likely. AUD bulls should look no further than the rapid surge in commodity prices, which may boost the total value of Australian exports by 20%, including a 30% rise in its commodity exports. In short, the Australian economy has boomed, and inflation is slowly creeping up. The consensus among economists is that the Royal Bank of Australia will leave its benchmark lending rate unchanged at 7.25% for the duration of the year. At the very least, it won’t lower rates, which is all analysts need to believe in order to get behind its currency. Bloomberg News reports:

“There could be some parity parties going on,” said a currency strategist in Sydney at RBC, a unit of Canada’s largest bank. “The RBA…[has] given a green light for the market to push the currency higher.”

posted by 4x-news on May 24

The dollar slipped lower against the majors as surging crude oil prices continue to weigh on the currency, falling near the 1.58-level against the euro and 103 versus the yen. US equity bourses continued to struggle with the Dow Jones and Nasdaq expected to close at its worst weekly performance in over three-months. We expect the greenback to extend losses into next week with interim targets at 1.59 against the euro and 102 versus the yen.

Existing home sales data was slightly better than expected, down 1% to 4.89 million units in April versus 4.93 million units a month earlier. However, the unsold homes inventory spiked by 10.5% to 4.55 million units – its highest level since the measure was first tracked in 1999. Further reaffirming the struggles facing the housing market, the median price for existing homes dipped by 8% in April compared with a year earlier.

posted by 4x-news on May 20

The Australian Dollar is rapidly approaching parity with the USD, having risen 12.8% in the year-to-date. In fact, it recently notched a 24-year high against the Dollar. The currency’s strength is connected closely with the US-Australia interest rate differential, which currently measures a whopping 5%. While the Australian Dollar has always been a favorite target of carry traders, it has received a special boost from the easing of US monetary policy, which has turned the Dollar into a funding currency. The New Zealand Kiwi has also performed well, thanks to a benchmark interest rate of 8.25%. However, New Zealand rates are probably headed downwards, whereas the consensus for Australia is for rates to remain at current levels, or even to rise, depending on inflation. Bloomberg News reports:

Board members decided to leave the rate at 7.25 percent because of “the substantial tightening” in financial conditions since mid-2007 and “uncertainty surrounding” the outlook for economic growth and inflation.

posted by 4x-news on May 17

The slight recovery of the USD has been accompanied by a couple of other interesting trends: falling gold and oil prices, and rising equity and bond prices. What is the connection here? With regard to gold and commodity prices, the prevailing theory was previously that high prices were caused not by supply issues, but rather by the Fed’s easy monetary policy, which was stoking the embers of inflation. The recent rise of the Dollar has poked a broad hole in this theory, because of the simultaneous fall in prices for certain commodities, namely gold. This has led some analysts to conclude that commodity prices are fluctuating irrespective of the Dollar.

With regard to oil, there does exist a 95% correlation between the price of oil and the EUR/USD exchange rate. However, it now appears that strong oil had been driving the weak Dollar, and not vice versa. The Dollar is also deriving some impetus from a rally in equity and bond markets, which have outperformed their European rivals.  Bond yields remain lower in the US, but with the stabilization of the Dollar, perhaps foreign investors will be convinced that the US is the least risky place to invest during the global economic downturn.