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CURRENCY ANALYSIS

AUD/USD: Inactions Speak Louder Than Words

AUD, USD, Inactions, Speak, Louder, Than, Words, Currency Analysis, fx trader, forex

06 Apr 2016

The US economy has been one of the better performing advanced global economies. It has recovered from the credit debacle of 2008 and the subsequent global recession, although the better performance must be viewed relative to the new normal global economy and relative to other advance economies still struggling to reflate growth. To complicate matters, during those recovery years, the global economy had been driven mostly by a roaring emergence of the Chinese economy. The boom years in China had a two-fold effect. First, many large global corporations had relocated production to China with significant cost savings. This in turn deflated consumer product prices across the board, thus more products were affordable to a much larger consumer market. On the domestic side of the coin the many Chinese citizens had much more discretionary income. Those who were able turned their savings into equity via property holdings. Naturally, this increase demand for housing drove the PRC to literally construct entire cities utilizing its large state owned enterprise network.  Commodity producing nations, Australia among them, went full throttle and remained so until China’s expansion cooled and deflated.

The deflating of China’s commodity demand has affected those commodity export driven economies, but also service sector consumer driven economies such as the United States. Just about a year ago the US Federal Reserve Bank began to signal its intent to unwind its accommodative monetary policy. At the 29 April 2015 Federal Open Market Committee meeting1, the Federal Reserve noted that “...    However, within just days, Fed officials were talking down the accommodative tone. Chicago Fed President Mr. Charles Evens raised expectations in a speech in Stockholm2; San Francisco Fed President Mr. John Williams took the same position when questioned by reporters in Singapore3 and even Chair Yellen raise market eyebrows when she voiced concerns over a potentially inflated US growth rate. The pattern of contradictory official statements and opinions continued for months.

A few days following the 29 April Fed meeting, Reserve Bank of Australia’s Governor, Mr. Glenn Stevens noted in his policy decision statement4 that “...The Federal Reserve is expected to start increasing its policy rate later this year, but some other major central banks are stepping up the pace of unconventional policy measures. Hence, financial conditions remain very accommodative globally... ...The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary...” Hence, the RBA seemed to welcome the Feds action, whenever it would come. Within 5 days, 14 May, the Aussie had its 52 week best vs the US Dollar at $0.81049 per Aussie. Analysts began to ‘give odds’ on an expected US Fed rate increase in June.

AUD, USD, Inactions, Speak, Louder, Than, Words, Currency Analysis, fx trader, forex AUD USD Price Event ChartAUD/USD Price Event Chart

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