Clues into RBA Rate Decision from commodities prices

Clues into RBA Rate Decision from commodities prices

By: Darryl Frankfort | Where To Trade | On:6-10-2014 13:26
Back

Key Highlights

  • AUDUSD has been on a down trend
  • Rates unchanged for since  Aug 2013
  • Lower commodity Prices slowing down growth
  • Iron ore prices ease over 33% in 2014 alone
  • Coal prices shed over 50% prices in 2014
  • Despite growth in the volume of trade
  • Slowed Chinese growth depressing demand for commodities
  • Less Japanese business activity
  • Stronger US economy and bullish USD pushes AUDUSD lower.

On Tuesday the RBA will announce its cash rate decision. The cash rate in Australia is currently at 2.5% and has been unchanged since August of 2013. The cash rate is an important determinant of the exchange rate in spot foreign exchange market and futures.  RBA uses the interest rate to implement its monetary policy.  Since the third quarter of 2013, the RBA has maintained an accommodative monetary policy meant to stimulate growth and maintain a low inflation within the medium term targets.

Australian Cash Rete

 

AUDUSD 

During this accommodative monetary policy the AUD has depreciated relative to other major currencies who, because of the 2008-2009 global down turn, were also similarly maintaining loose monetary policies on their economies. The AUDUSD has been on a long term down trend since 2011. At its historical peaks in 2011, the AUDUSD exchange rate was at 1.09 but has now plummeted over 2000 pips. This has been a reflection of the general Australian economic activity and outlook.

 The lower prices for commodities have been linked to the slowdown in demand in the world economy. China which is now commands over 23% of the net Australian trade 31% of its exports and its largest trading partner has been experiencing slower economic growth from its peaks at 2.3% in 2013 quarterly growth. This reduction in growth causes less demand for Australian commodities form Chinese businesses.

Japan, which absorbs over 15% of Australian exports, posted a 1.8% contraction (negative 1.8%) for the third quarter of 2014. This is seen as mainly caused by the consumption tax increase from 5% to 8% earlier this year. After the tax increase, the Bank of Japan tankan survey of business sentiment in July worsened overall. Major corporations in the manufacturing industry fell below expectations of 17%pt to 12%pt from 17%pt. considering the importance of the Japanese market t Australia a weaker sentiment in the manufacturing sector will negatively influence the demand for commodities and thus push the Australian dollar lower.

There is a general expectation in the markets and within the RBA that the commodities markets will rebound. On the other hand, an increase in productivity efficiency for iron ore has made increased competition in the markets further depressing their prices. The rebound of the US economy gives hope that global demand for products will increase and hence raise the commodities prices. This proposition ties the commodities prices with the recovery of the global economies. In the meantime however the strengthening of the US economy will mainly serve to appreciate the USD against the AUD.

 

Wrap up

The AUD USD down trend has been cause by many precipitating fundamental factors. In the medium term none of these factors has significantly changed. Even though markets expect the rebound of the commodities markets the medium term expectations for the commodities markets and the AUDUSD is bearish.

Under these conditions, we anticipate the RBA monetary policy to remain accommodative and the cash rate to remain unchanged at 2.5%. We also expect the bearish trend to persist in the long term. An excellent trading approach is to maintain a short bias in the AUDUSD trades and to sell the tops.

EURUSD Slow and Steady Uptrend

EURUSD Slow and Steady Uptrend

By: Ben Myers | Where To Trade | On:02-05-2015 11:21

Euro traded higher versus the US Dollar Intraday, and registered a new weekly high as buyers were optimistic after a report which points that better growth is possible in the Euro Area.

Euro Above 1.1200 And Looks Set For More Gains

Euro Above 1.1200 And Looks Set For More Gains

By: Simon Furman | Where To Trade | On:30-04-2015 11:11

Euro continued to gain momentum against the US dollar as the latter one weakened recently, which means there is more room for gains in the EURUSD pair.

EURUSD Moved Above 1.1000, Eyes a Test of 1.1040

EURUSD Moved Above 1.1000, Eyes a Test of 1.1040

By: Oliver Miller | Where To Trade | On:29-04-2015 11:06

UK Nationwide Housing Prices highlighting the value of the houses prices in UK and indicate current movements in the housing market posted an increase of 1% in April, compared to the preceding month.

EURUSD Looks Set To Break 1.0920

EURUSD Looks Set To Break 1.0920

By: Darryl Frankfort | Where To Trade | On:28-04-2015 10:53

Euro managed to gain bids during the London session against the US dollar, and it looks like the pair might break the recent high of 1.0920 to trade close to the 1.0950 level.

FX Market Continues To Consolidate Post Dollar Losses

FX Market Continues To Consolidate Post Dollar Losses

By: James Ansher | Where To Trade | On:27-04-2015 10:46

US dollar continued to weaken against a few currencies and managed to recover some ground against currencies like the Euro and the British Pound

StockPair

Press Release

YesOption Voted Best Technical Analysis by DailyForex

YesOption Voted Best Technical Analysis by DailyForex

August 12, 2014 - London, UK, - Leading online forex and binary options trading platform - www.yesoption.com has once again made the news by being awarded the prestigious award of ‘Best Technical Analysis of 2014’ ...
24option binary options broker review

24option binary options broker review

Plus500Findings.com is recently launched online to help traders decide which broker they could open an account. 24Option, one of the popular trading platform online is reviewed whether it is legitimate broker or scam. This reviews and findings are of great benefits for traders, especially for those novice ones, who are just starting in the trading industry. ...
Banc De Binary Expands Investment Research Service

Banc De Binary Expands Investment Research Service

Leading Investment Firm, Banc De Binary, which specializes in binary options trading, has added a new weekly video series and trading webinars to the investment research service that it provides to its clients. ...

Articles

Citigroup Inc. is to pay $25 million amends

Citigroup Inc. is to pay $25 million amends

Citigroup accepted to pay the amends without denying the accusation ...
Netflix added 7.1 million new subscribers

Netflix added 7.1 million new subscribers

Netflix Inc. managed to add in the last quarter of 2016 more subscribers than expected ...
The Federal Reserve Chair Janet Yellen is set to have another speech on Thursday

The Federal Reserve Chair Janet Yellen is set to have another speech on Thursday

On Wednesday, Federal Reserve Chair Janet Yellen spoke about the interest rates and about the United States' economy ...
StockPair

Featured Listings