Sunday, November 9, 2008

Watch Out For The Downside Risk Of AUD

A global recession in 2009 is looming large. All the industralised nations and emerging markets are embarking on loosening monetary policy to hit head-on the world weakening economy.

The Fed is poised to lower further its rate to counter with the slow-down of Uncle Sam's economy. Elsewhere the central banks are all mooting to act on a soft monetary policy to face up to the bearish outlook. There is even speculation now that U.S. might resort to adopting a zero-rate policy. Of course this is just a market talk. But believe me, there is sustance in it.

When Barrack Obama won the historic race to the White House, he vowed to take on revamping the devastated economy as his top priority.

That shows how bad is the world staggering down the road!

When AUD broke all the support levels and hit new lows, buyers and investors alike were thrilled to the extreme, thinking it was opportune time to go in the market to mop up AUD.

But AUD is far from bottoming out, according to international currency strategists. Owing to its high rate differentials over all major currencies, AUD has been the target of Yen carry traders. With the Australian economy slowing down in tandem with the gloomy global growth, Australia would inevitably have to cut its rate to pump up its economy.

Presently at 5.25%, Australia leaves plenty of room for loosening its monetary policy. That signals a bad outlook for AUD since lowering rate is equivalent to depreciating a currency.

When most of the major nations have limited space to move downwards in their rates, Australia has huge space to go further. That suggests that AUD has a lot more downaside risks when compared with other currencies.

If you are keen on AUD, just keep on tracking.

1 comment:

Kong said...

I did realize you are into technical analysis?

So how far down you think it will go? Below RM2 like before?

Of course, the right answer is worth millions.