Factors that affect the Australian dollar

  

Our old friend the Aussie dollar has enjoyed a resurgence this week. The ostensible reason is the publication of Australian GDP figures that were in line with expectations and therefore did not disappoint. In addition, the Reserve Bank (RBA) kept the cash rate on hold at its most recent meeting.

While these are valid reasons for correcting a fall in the Aussie, they are not sustainable indications of a reversal in that fall. The mining economy has still peaked, unemployment is still rising and, despite something of a short squeeze caused by Chinese steel manufacturers who rashly allowed stocks to fall in anticipation of cheaper iron ore prices, the overall trend in commodities is also down.

USA Quantitative Easing (QE) is still on track for tapering and there is a very significant resistance for AUDUSD at 0.93902.

And we must not, above all, forget the upcoming Federal elections Down Under. These will take place this coming weekend. The currency is very sensitive to political developments and it must be true that there is a degree of positioning taking place in anticipation of the election.

This chart shows what happened at the time of the last general election in Australia:

The horizontal dashed line to the left of the block arrows on the chart represents the weekend of the election (elections in Australia are always held on a Saturday), when currency trading does not take place. On the Sunday night, Greenwich Mean Time (GMT), when the markets in New Zealand reopened, the AUDUSD pair had been marked down by a full US cent as a reaction to the Aussie election result. Such as gap, while quite common in equities and indexes, is almost unknown in Foreign Exchange trading.

We remain on the sidelines in this pair at present.