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Will the Australian Dollar Hit Parity?Wednesday, 21 May 2008 19:08:23 GMTPrinter Friendly
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Previous Articles[list]May 21 - Will the Australian Dollar Hit Parity?
May 21 - FOMC Minutes Reveal April Rate Cut Almost Didn't Happen, Pause In June
May 21 - BoE Voted 8-1 To Keep Rates Unchanged
May 20 - Australian Dollar Sets 24-Year High, Eyeing More Upside
May 18 - Dollar: Another Test of 1.60?
May 16 - British Pound in Early Stages of Large Bull Move
May 15 - Pound Positioning Holds Net Long With 1.94 Support In Sight
May 14 - Why The Euro Could Continue To Fall
May 14 - Traders Bet The Fed Will Hold As Credit, Growth Outlook Improve
May 13 - Euro Retraces, Looks For Downtrend to Resume
May 11 - Dollar Rally Runs Out of Gas
May 09 - Canadian Dollar Will Fall Across the Board
May 08 - Euro SSI Points To Further Loses For A Third Straight Week
May 08 - Trichet Holds His Hawkish Tone Despite Ongoing Financial Turmoil
May 08 - BoE Leaves Rates Unchanged On Inflation Concerns
May 07 - BoE, ECB: How Will They Vote? Will the Rate Decisions Derail EUR/GBP?
May 06 - ECB: Will Trichet Back Off From His Hawkish Bias This Week?
May 05 - Oil Hits Record $120:Trade it with USDCAD
May 04 - Dollar: Doomsday Denied
[*]May 02 - Yen and Stocks: Don't Get Comfortable
[/list] Written by John Kicklighter, Currency Analyst and Jamie Saettele, Technical Currency Strategist Who could have imagined that the value of one Australian dollar could be equal to one US Dollar? As recently as the beginning of this year, parity or an exchange rate of 1.0 still seemed like a far fetched idea because at the time, the Australian dollar was trading at 0.88 against the US dollar. Five months, 800 pips and 9 percent later, the AUD/USD is now within an arms reach of parity. Both the Canadian dollar and Swiss Franc have taken a stab at the same price level in the hopes of becoming more valuable than the US dollar, but only one of these currency pairs have been managed to be successful. What is most impressive about the Australian dollar’s rally is the fact that it is coming at a time when the US Federal Reserve has reached the end of its monetary easing cycle. The AUD/USD pressed on to a new 24-year high above 0.96 thanks to rising commodity prices, a roaring economy and favorable yield differential. The big question now is if a move to parity is a done deal. Reasons Why Parity Is Inevitable Considering the unyielding strength of the AUD/USD’s advance, the market is looking at no shortage of reasons as to why the currency pair will reach parity. The primary support for bullish continuation is the divergence in economic activity between the Australian and US economies. Though the first quarter GDP reading has yet to be released for the Australian economy, the annualized pace of activity through the fourth quarter was running at a hearty 3.9 percent – a leader among most of its industrialized counterparts. On the other side of the world, the US economy has slowed to a crawl. Since the beginning of the year, annualized growth held at a 0.6 percent clip – matching the slowest rate of expansion in five years. What’s more, the outlook for economic activity is still heavily biased in Australia’s favor. While the Aussie economy is expected to stumble modestly due to slower consumer spending, the pace is not expected to slip substantially from its high-water market. On the other hand, there is still great debate surrounding the US economy and whether it will see negative growth or even a recession in the second half of the year. Another reason why the AUD/USD should continue to rally comes from the combination of economic activity and inflation. Interest rate differentials are a primary valuation tool for the currency market; and few pairs enjoy as large and stable a gap as the AUD/USD. Indeed, looking at the chart below, the Australian currency has held a carry advantage over the greenback for many years. However, even when the differential was compressed with the Fed’s steady rate hikes from 2004 to 2006, the AUD/USD merely turned to consolidation. Now, we are seeing the carry potential at its highest level in years; and any rebound in risk appetite will direct carry interest to this economically-strong candidate. What’s more, the minutes from the latest RBA monetary policy meeting heavily alluded to the possibility of another rate hike in the near term – adding a level of hawkish speculation to an already significant yield advantage.
Another consideration for Aussie bullishness is the different roles commodities play for both the US and Australian economies. Australia is the largest exporter of coal and among the top producers of gold, nickel and other necessary resources. In direct contrast, the US is one of the world’s top importers of these necessary goods. This relationship has long had an influence over price action (as can be seen in the AUD/USD vs. Gold chart below); but recently, this tie reached an extreme. In the past few months, prices for energy, metal and agricultural goods have reached record highs and the burden has dramatically altered the growth prospects of both economies.
Reasons Why Parity May Be An Ambitious Target
On the other hand, while the economic stars seem to be aligning for the AUD/USD to overtake its own milestone; there are still potent arguments for why the pair may struggle to reach parity. One of the most salient reasons to doubt the buoyancy of the pair is derived from its strongest support. While the current interest rate differential stands heavily in the Aussie dollar’s favor and there is rising speculation of a possible hike in June or July, the longer-term outlook for rates suggests the RBA will begin a steady regime of cuts within a year’s time. In fact, until just recently debt markets were pricing in a cumulative 60 bps worth of easing over the next 12 months. This is in direct contrast to the outlook for the Fed over the same period. Over the coming year, the market expects nearly 75 basis points worth of rate hikes from US policy authority. The chart below plots the expected change in the RBA Cash Target minus the expected change in the Fed Funds rate over the next year (the blue line) against AUDUSD price action (the yellow line). This may seem contradictory to the rumblings of a possible rate hike from the RBA, but the market is clearly skeptical that the hawkishness will continue – especially with Australia experiencing a significant drop in housing activity, consumer spending and business confidence in recent data. Altogether, the market sees far greater potential for the Fed to produce aggressive hikes from its low 2.00 percent than for the RBA to continue its tightening with the benchmark already at a 12-year high.
While interest expectations are the greatest pitfall to an ongoing advance for AUD/USD, there is a more immediate drawback for the pair that may prove more timely for the market. Over the past six weeks, there has been a notable rebound in risk appetite. If market conditions were the same as they were a year ago, this demand for yield would prove to be a boon for the carry intensive AUDUSD; however, conditions are much different now. Though risk appetite has translated to strength for global equities, a number of yen crosses and a few other assets; traders are now far more cautious about where their risk is coming from. After the subprime meltdown spread across the financial markets through the second half of 2007 and into the opening months of this year, many traders took a significant hit to their accounts. With the hole in their capital still plainly visible traders will likely be more prudent in choosing their trades – and going long AUDUSD at a 24-year high certainly isn’t buying cheap.
Technicals Suggest a Tag of 1.00 and then a Reversal
Currencies have freely floated since the early 1970s and since then the AUDUSD has traced out a perfect Elliott wave pattern. The basic pattern that governs all free markets is the 5-3 pattern. That is, 5 waves in one direction are followed by 3 waves in the other direction. It is obvious that the AUDUSD decline from 1.4885 (1973) to .4775 (2001) unfolded in 5 waves. Similarly, the advance from .4775 is unfolding in 3 waves. A potential terminus for wave C is where it would equal wave A; which is at 1.00.
(It is likely that the rally from .4775 is just the first leg in a larger more complex advance from the 2001 low. Why? The decline from 1973 took 27 years and the advance has lasted a little over 6 years. Still, this chart suggests that that the next big move is down -- to at least .7600 (roughly 38.2% of the rally from 2001) and probably lower.)
Wave C (from .6771) within the A-B-C advance from .4775 can be counted as an ending diagonal (where waves 1 and 4 overlap and each leg consists of 3 waves). Extending a line from the top of wave 1 that is parallel to a line drawn off of the bottoms of waves 2 and 4 suggests that the top is near. The line comes in just above .9700 this month and increases about 20 pips per month. However, a spike through the line in a ‘throwover’ is likely, given that wave C would equal wave A at 1.00.
Conclusion
Looking at the arguments for and against AUDUSD reaching parity, there is a distinct difference between both sides of the market: bullish support is based on current factors while the bears are basing their case on forecasts and speculation. Realistically, it could take a significant time for interest rates biases to change and risk trends to redefine themselves; and with AUD/USD less than 400 points away from 1.0000, the pair may breach the level long before either of these considerations become a market-wide issue. What’s more, as we can see from many of the other pairs that have breached their own milestones (EURUSD above 1.50, GBPUSD above 2.00, USDCHF below 1.00 and USDCAD below), the market often pushes towards these big psychological levels even if the trend is fading. So, unless the Fed announces a surprise rate hike or a surge in risk aversion seizes the entire currency market over the coming few weeks, the Australian dollar will likely be the next to overtake parity against the benchmark US dollar.
| Email Article
| RSS
| Previous articles
Previous Articles[list]May 21 - Will the Australian Dollar Hit Parity?
May 21 - FOMC Minutes Reveal April Rate Cut Almost Didn't Happen, Pause In June
May 21 - BoE Voted 8-1 To Keep Rates Unchanged
May 20 - Australian Dollar Sets 24-Year High, Eyeing More Upside
May 18 - Dollar: Another Test of 1.60?
May 16 - British Pound in Early Stages of Large Bull Move
May 15 - Pound Positioning Holds Net Long With 1.94 Support In Sight
May 14 - Why The Euro Could Continue To Fall
May 14 - Traders Bet The Fed Will Hold As Credit, Growth Outlook Improve
May 13 - Euro Retraces, Looks For Downtrend to Resume
May 11 - Dollar Rally Runs Out of Gas
May 09 - Canadian Dollar Will Fall Across the Board
May 08 - Euro SSI Points To Further Loses For A Third Straight Week
May 08 - Trichet Holds His Hawkish Tone Despite Ongoing Financial Turmoil
May 08 - BoE Leaves Rates Unchanged On Inflation Concerns
May 07 - BoE, ECB: How Will They Vote? Will the Rate Decisions Derail EUR/GBP?
May 06 - ECB: Will Trichet Back Off From His Hawkish Bias This Week?
May 05 - Oil Hits Record $120:Trade it with USDCAD
May 04 - Dollar: Doomsday Denied
[*]May 02 - Yen and Stocks: Don't Get Comfortable
[/list] Written by John Kicklighter, Currency Analyst and Jamie Saettele, Technical Currency Strategist Who could have imagined that the value of one Australian dollar could be equal to one US Dollar? As recently as the beginning of this year, parity or an exchange rate of 1.0 still seemed like a far fetched idea because at the time, the Australian dollar was trading at 0.88 against the US dollar. Five months, 800 pips and 9 percent later, the AUD/USD is now within an arms reach of parity. Both the Canadian dollar and Swiss Franc have taken a stab at the same price level in the hopes of becoming more valuable than the US dollar, but only one of these currency pairs have been managed to be successful. What is most impressive about the Australian dollar’s rally is the fact that it is coming at a time when the US Federal Reserve has reached the end of its monetary easing cycle. The AUD/USD pressed on to a new 24-year high above 0.96 thanks to rising commodity prices, a roaring economy and favorable yield differential. The big question now is if a move to parity is a done deal. Reasons Why Parity Is Inevitable Considering the unyielding strength of the AUD/USD’s advance, the market is looking at no shortage of reasons as to why the currency pair will reach parity. The primary support for bullish continuation is the divergence in economic activity between the Australian and US economies. Though the first quarter GDP reading has yet to be released for the Australian economy, the annualized pace of activity through the fourth quarter was running at a hearty 3.9 percent – a leader among most of its industrialized counterparts. On the other side of the world, the US economy has slowed to a crawl. Since the beginning of the year, annualized growth held at a 0.6 percent clip – matching the slowest rate of expansion in five years. What’s more, the outlook for economic activity is still heavily biased in Australia’s favor. While the Aussie economy is expected to stumble modestly due to slower consumer spending, the pace is not expected to slip substantially from its high-water market. On the other hand, there is still great debate surrounding the US economy and whether it will see negative growth or even a recession in the second half of the year. Another reason why the AUD/USD should continue to rally comes from the combination of economic activity and inflation. Interest rate differentials are a primary valuation tool for the currency market; and few pairs enjoy as large and stable a gap as the AUD/USD. Indeed, looking at the chart below, the Australian currency has held a carry advantage over the greenback for many years. However, even when the differential was compressed with the Fed’s steady rate hikes from 2004 to 2006, the AUD/USD merely turned to consolidation. Now, we are seeing the carry potential at its highest level in years; and any rebound in risk appetite will direct carry interest to this economically-strong candidate. What’s more, the minutes from the latest RBA monetary policy meeting heavily alluded to the possibility of another rate hike in the near term – adding a level of hawkish speculation to an already significant yield advantage.
Another consideration for Aussie bullishness is the different roles commodities play for both the US and Australian economies. Australia is the largest exporter of coal and among the top producers of gold, nickel and other necessary resources. In direct contrast, the US is one of the world’s top importers of these necessary goods. This relationship has long had an influence over price action (as can be seen in the AUD/USD vs. Gold chart below); but recently, this tie reached an extreme. In the past few months, prices for energy, metal and agricultural goods have reached record highs and the burden has dramatically altered the growth prospects of both economies.
Reasons Why Parity May Be An Ambitious Target
On the other hand, while the economic stars seem to be aligning for the AUD/USD to overtake its own milestone; there are still potent arguments for why the pair may struggle to reach parity. One of the most salient reasons to doubt the buoyancy of the pair is derived from its strongest support. While the current interest rate differential stands heavily in the Aussie dollar’s favor and there is rising speculation of a possible hike in June or July, the longer-term outlook for rates suggests the RBA will begin a steady regime of cuts within a year’s time. In fact, until just recently debt markets were pricing in a cumulative 60 bps worth of easing over the next 12 months. This is in direct contrast to the outlook for the Fed over the same period. Over the coming year, the market expects nearly 75 basis points worth of rate hikes from US policy authority. The chart below plots the expected change in the RBA Cash Target minus the expected change in the Fed Funds rate over the next year (the blue line) against AUDUSD price action (the yellow line). This may seem contradictory to the rumblings of a possible rate hike from the RBA, but the market is clearly skeptical that the hawkishness will continue – especially with Australia experiencing a significant drop in housing activity, consumer spending and business confidence in recent data. Altogether, the market sees far greater potential for the Fed to produce aggressive hikes from its low 2.00 percent than for the RBA to continue its tightening with the benchmark already at a 12-year high.
While interest expectations are the greatest pitfall to an ongoing advance for AUD/USD, there is a more immediate drawback for the pair that may prove more timely for the market. Over the past six weeks, there has been a notable rebound in risk appetite. If market conditions were the same as they were a year ago, this demand for yield would prove to be a boon for the carry intensive AUDUSD; however, conditions are much different now. Though risk appetite has translated to strength for global equities, a number of yen crosses and a few other assets; traders are now far more cautious about where their risk is coming from. After the subprime meltdown spread across the financial markets through the second half of 2007 and into the opening months of this year, many traders took a significant hit to their accounts. With the hole in their capital still plainly visible traders will likely be more prudent in choosing their trades – and going long AUDUSD at a 24-year high certainly isn’t buying cheap.
Technicals Suggest a Tag of 1.00 and then a Reversal
Currencies have freely floated since the early 1970s and since then the AUDUSD has traced out a perfect Elliott wave pattern. The basic pattern that governs all free markets is the 5-3 pattern. That is, 5 waves in one direction are followed by 3 waves in the other direction. It is obvious that the AUDUSD decline from 1.4885 (1973) to .4775 (2001) unfolded in 5 waves. Similarly, the advance from .4775 is unfolding in 3 waves. A potential terminus for wave C is where it would equal wave A; which is at 1.00.
(It is likely that the rally from .4775 is just the first leg in a larger more complex advance from the 2001 low. Why? The decline from 1973 took 27 years and the advance has lasted a little over 6 years. Still, this chart suggests that that the next big move is down -- to at least .7600 (roughly 38.2% of the rally from 2001) and probably lower.)
Wave C (from .6771) within the A-B-C advance from .4775 can be counted as an ending diagonal (where waves 1 and 4 overlap and each leg consists of 3 waves). Extending a line from the top of wave 1 that is parallel to a line drawn off of the bottoms of waves 2 and 4 suggests that the top is near. The line comes in just above .9700 this month and increases about 20 pips per month. However, a spike through the line in a ‘throwover’ is likely, given that wave C would equal wave A at 1.00.
Conclusion
Looking at the arguments for and against AUDUSD reaching parity, there is a distinct difference between both sides of the market: bullish support is based on current factors while the bears are basing their case on forecasts and speculation. Realistically, it could take a significant time for interest rates biases to change and risk trends to redefine themselves; and with AUD/USD less than 400 points away from 1.0000, the pair may breach the level long before either of these considerations become a market-wide issue. What’s more, as we can see from many of the other pairs that have breached their own milestones (EURUSD above 1.50, GBPUSD above 2.00, USDCHF below 1.00 and USDCAD below), the market often pushes towards these big psychological levels even if the trend is fading. So, unless the Fed announces a surprise rate hike or a surge in risk aversion seizes the entire currency market over the coming few weeks, the Australian dollar will likely be the next to overtake parity against the benchmark US dollar.3楼
结论中最重要的区别： bullish support is based on current factors while the bears are basing their case on forecasts and speculation.。
翻译：牛市趋势的支撑是建立在当前因素上面。熊市趋势是建立在预测和投机上面。
纪律为王
资金管理
精确分析
最后做单
发表于：2008-05-22 17:27只看该作者
4楼
我比较讨厌重要数据的公布，可能是因为我经验不足，希望以后能有所进步
发表于：2008-05-22 23:40只看该作者
5楼
汇市风云变幻，输赢自有缘定
发表于：2008-05-22 23:44只看该作者
6楼
佩服楼主的英文,看到这么多英文我就头痛,看不下去