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Monthly Australian dollar fundamental analysisHope for the best but do the rest. Although the major drivers of the AUDUSD 30% rally up from the March low have been the rapid recovery of China’s economy and the increase in the global risk appetite, the Australian dollar has domestic drivers as well. Australia efficiently manages the pandemic, and the government is willing to expand the fiscal stimulus. Australia’s Treasurer Josh Frydenberg is willing to provide money until the labor market returns to the full employment state. It is about the unemployment rate of 5%. The current unemployment rate is 6.8%, and it may grow to 8%-10%. It will hardly drop back to 5% before 2022.
Investors expect the Treasury to boost the fiscal stimulus. As a result, the net debt burden will increase to AU$712 billion or to 38% of the GDP. At the same time, the national debt ceiling will be increased above AU$1.1 trillion, and the income tax hike, planned for 2022, will be delayed. In the USA, the national debt exceeds 100% of GDP, in the euro-area, it is close to 100%, the Japanese government debt is more than 200%. Canberra can afford additional stimulus. Besides, the expansion of government bonds issue will support the capital inflow in Australia and strengthen the Aussie. Australia’s government bond rates are the highest among the countries issuing the G10 currencies.
Dynamics of Australia’s net debt, % of the GDP
Carry trades and high investment rating of Australia’s securities support and will support the AUDUSD bulls amid the high risk appetite and low volatility. That is the reason for the AUD correlation with the US stock indices. The turmoil in the S&P 500 market ahead of the US presidential election will suggest the AUDUSD consolidation.
Dynamics of AUDUSD and S&P 500
Source: Trading Economics
In addition to the size of the additional fiscal stimulus, investors are focused on the RBA's willingness to expand the volume of monetary support. In September, the RBA officials discussed such measures as the interest-rate cut down to 0.1%, purchasing bonds with longer maturities than currently under QE, negative borrowing costs, and even FX interventions. The latter two options are aggressive, and the regulator will hardly resort to such measures. But it is likely to cut the interest rate by 12 basis points. The derivatives market suggests it will happen already this year.
Monthly AUDUSD trading planExpectations of monetary expansion is a bearish factor for the AUD. However, I don’t think the RBA will do it in October. It is likely to leave the door open for the interest rate cut in the future and set the Aussie bulls back using verbal interventions. The RBA will hardly turn the uptrend down, so, its dovish stance will give a chance to buy the pair of the price fall. Following ht consolidation in the range of 0.695-0.735, the AUDUSD is likely to continue its rally up to 0.76 and 0.79.
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RBA’s Debelle: RBA is assessing currency market intervention 0. By FX Street Published: Sep 22, 2020 00:37 GMT Last Modified: Sep 22, 2020 02:37 GMT FXStreet News. Deputy Governor Guy Debelle said on Tuesday that Australia’s central bank is assessing various monetary policy options including currency market intervention and negative rates to meet its inflation and employment goals. Given ... The RBA almost always conducts its intervention in the Australian dollar/US dollar exchange market, owing to the fact that liquidity and turnover are greatest in that market. The RBA has the capacity to deal in markets for the Australian dollar around the world in all time zones. Most of the RBA's foreign exchange intervention transactions occur in the spot market. If the RBA chooses to ... AUD Drops as RBA is Considering Forex Market Intervention. Ibeth Rivero on September 27, 2020 Latest News. USD Recovers Ahead of US Presidential Elections . 5 days ago Ibeth Rivero Fundamental Analysis Yen Gains as Demand for Safe Havens Surge . 9 days ago Ibeth Rivero Fundamental Analysis GBP Recovers as Brexit Talks Optimism Takes Over the Markets. 12 days ago Ibeth Rivero Fundamental ... MNI BRIEF: RBA Forex Intervention Only If Dysfunctional: Lowe Les Commons. MNI (London) ... FI Market: Focusing on the Fixed Income market, our specialist approach makes us a resource relied upon by the world’s most prominent financial market investors. Our real-time insight and intelligence is renowned for leading and shaping the debate on key market issues, giving our customers the edge in ... The RBA has previously said on multiple occasions that negative rates were "extraordinarily unlikely" in Australia though Debelle did not repeat that message. Market implications The Aussie was ... RBA’s Lowe: Liquidity in forex market thin but have not acted to intervene, Aussie extends the bounce more to follow ... Any intervention is published on the RBA's website some time after the event. The RBA made a net gain of $3 billion from securities and foreign exchange compared to last year's loss of $1.8 billion.
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