
It is not
normally the job of a central bank to manipulate the value of its country’s
currency. But it is its job to moderate the decline (or appreciation) of a
currency if fundamental factors change that might give rise to such movement.
This is the
best way to interpret the minutes of the last Federal Reserve meeting which
were released yesterday and the remarks made by Fed chairman Bernanke during
the question and answer session after a speech he gave to the National Bureau of
Economic Research Conference, also yesterday.
The US
dollar is going up in the medium to long term because QA is coming to an end,
and the main concern of the Fed now is to make sure that this is an orderly
process. Thus the Fed minutes and Mr. Bernanke’s comments have led to a
temporary fall in the US dollar, to somewhat offset its rise of recent weeks.
The same
goes for the Aussie dollar. It has fallen precipitately since last month and
the efforts of the Australian monetary authorities now have to be to make sure
that, while a weaker AUD is in fact desirable, that this does not happen all at
once.
There has
been a rapid decline in the value of the Aussie against the U.S. unit. This
has now halted, at least temporarily, and there should be a retrace. The extent
of this will be affected by the significant resistance level that exists around
0.9380, as can be seen in the monthly chart below.
The efforts
of central banks to moderate movement in currency rates, while it does indeed
result in somewhat orderly changes when seen, for example, on the weekly and
monthly charts, can give rise to significant bi-directional volatility on
shorter scale time frames (we find it
necessary to distinguish between bi-directional and uni-directional volatility
for trading purposes).
Individual
traders should refrain from betting on the retrace discussed here as it will be
very much a counter-trend move.
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