Forex Investment and Currency Trading

The RBA has intervened on several occasions in recent weeks as AUD/USD threatened to trade below 0.60 raising speculation that 0.60 is the “line in the sand”. Though recent intervention efforts have been successful in halting a decline in AUD/USD through 0.60, an eventual break lower is a key risk on renewed risk aversion. Such a break could extend to 0.55.
The RBA undertakes transactions in foreign exchange markets for several reasons. The least frequent, but most prominent, are those to influence AUD - intervention. This is distinct from the building (or drawing down) of foreign exchange reserves associated with the [...]

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Many observers have been pointing out that slowing Chinese growth will likely trigger a policy response, and indeed, monetary policy has already been eased to some extent. Many also perceive a change in FX policy, given the Renminbi has been stable versus the Dollar for some time now. NDF forward markets even price outright CNY depreciation going forward. However, in the global context, the CNY should appreciate to help shrink China’s external surplus. This seems to be happening. In trade weighted terms the CNY remains one of the strongest currencies globally, up about 10% since early August, mainly as the [...]

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FX markets spent much of the night/day speculating over the likely extent of USD demand from equity managers at the month-end London fixing and watching signs of risk appetite in Asian equities and S&P futures. This is the most uncertain, and anticipated event of the day. Many fund managers are choosing to manage this risk themselves, and are giving up their fix trades at the last minute this morning. The potential exists for this fix to be significantly large given the falls in equity markets during the past month. Many will potentially try to get short ahead of this and [...]

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Eurozone CPI fell sharply, according to the flash estimate, to 3.2% yoy in October from 3.6% September and the 4.0% peak in June/July. In November, the large base effect from the spike in oil prices last year will probably push the headline rate to below 3.0%. At current oil prices,
headline inflation could trough at no more than 1% in mid-2009, providing the ECB cover for aggressive rate cuts. Market expects a 50bp cut in November and a further 50bp of easing within the two months thereafter. Separately, the Eurozone unemployment rate held steady at
7.5%, as expected, but the number of unemployed [...]

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USD/CAD entered into a more pronounced retracement phase on October 29, when prices registered a bearish trend reversal below the ascending channel base at 1.2289. This development was magnified by the daily studies, which had traced out a bearish divergence from overbought levels. With resistance at 1.2466 and 1.2575 now expected to attract selling interest, support levels at 1.1990 and 1.1748 serve as initial downside price targets. Also, note that 38.2% Fibonacci retracement at 1.1979 was tested yesterday – with a close below this level highlighting the 50% and 61.8% retracement levels at 1.1659 and 1.1339. Once the overbought divergence is [...]

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