Forex Investment and Currency Trading

US dollar weakness
The single most important contributor to AUD strength will be a weaker US economy than is currently priced by the currency and interest rate markets. It is forecasted the ongoing weakness in the US economy as house prices continue to fall; employment contracts sharply; gas and food prices remain high and consumer spending and investment soften further. Wage pressures and core inflation are easing and the Fed will have adequate scope to ease further through 2008 and 2009. The shock that the Fed is easing further and the ongoing weakness in the US economy will cause the USD [...]

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USD approaching a top
Over the past month there has been biased towards USD strength as a disconnect formed between fixed interest and FX markets. This process has just about run its course. A Fed pause is now fully discounted into year’s end and a hike is priced in early next year. It’s diffi cult to see how the FOMC could provide yet further support to the USD. The risks are seen skewed substantially towards further Fed easing.
AUD - USD trend will still be important
On March 4 of this year people argued that the AUD was likely to correct from the [...]

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NZ cash rates are a long way above real neutral

Reflecting increasing downside risk to activity stemming from a much weaker housing market, tighter credit conditions, and a deteriorating global growth backdrop, market brought forward the first rate cut to Q4 2008 from Q1 2009. An extra 50bp of easing next year is also expected, taking the cash rate to 6.25% by Q3 2009. In the face of continued above target inflation in 2008, 200bp of easing may look aggressive, but given that the real neutral cash rate is just above 5%, we would argue that such magnitude of easing is [...]

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In a relatively quiet week, all eyes will be on the Australian quarterly inflation numbers and the RBNZ decision.
Australia: In an otherwise quiet week finishing with the Anzac Day holiday, some of the suspense has been taken out of the quarterly CPI data on Wednesday because: (a) there is a pretty good forecast of the outcome from the monthly experimental inflation gauge; and (b) the RBA has already said: “CPI data for the March quarter…likely to show inflation of around 4 per cent … Underlying inflation … (is also) expected to rise.” That is, markets have already priced in a [...]

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