Yesterday the Australian dollar fell
below a key support level against the US dollar and in so doing created another
long-term lower low, to confirm the existence of a formal downtrend that has
been place since early last year (2013).
The fall yesterday was one of the
biggest in recent times. The exchange rate against the greenback went to a
four-year low. This came as the price of many commodities that are important to
the Australian economy are also in rapid decline, in particular Iron Ore, which
the country exports in large quantities to China and which is itself now at a
five-year low. Record lows abound. Gold and oil are in the same club.
On the US dollar side of the equation
the results of the recent mid-term elections, with the ascendency of the
Republican Party in both houses of Congress, was a boost to the US unit, as was
the decent jobs report from the private company, ADP, which could presage
another good Non-Farm payrolls report tomorrow (Friday). The market takes the
view that the Republican Party will be pro-business.
RBA
chief proves prescient
A word of praise should be reserved
for the governor of the Reserve Bank of Australia (RBA), Glenn Stevens. For
some time now he has been looking for a weaker Australian dollar in order to
assist his economy in the transition it must carry out between a mining driven
export economy, which is no longer sustainable, and one that relies on domestic
consumption.
To this end he has predicted that a
weaker Aussie will eventuate, and that this can happen without further core
interest rate decreases. He has forecast that an important driver of this will
be a stronger US dollar, based on the ending of QE in the US. Mr. Wheeler could
not have foreseen the Republican Party victories mentioned above, but he
deserves credit for his overall analysis and for his patience in “allowing the
market to come to him”.
In Forex, we should all do that.
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