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Exchanging AUD for USD ? Here is a quick wrap of the week so far.

Written by Sam Coxhead on July 15th, 2011.      0 comments

4:03 PM (NZT) Just a quick update for you on the AUD/USD so far this week.
Whilst we remain in the broader established range, the volatility has been significant. Most of the focus has been based around US dollar news, although there have been weaker Consumer and Business sentiment surveys in Australia.
In the US there have been two major moves affecting the price action. US Fed Chairman Ben Bernanke was making his semi-annual Monetary policy Report to the Senate House Financial Services Committee and he made comments with regards to still have the ability to use Quantitative Easing if required. This caused the US to be sold aggressively and the stock and commodity markets soared to the top side. This euphoria at the possibility of further Fed stimulus did not last however, and  Bernanke has subsequently stated that the need would have to be significant as inflation is running well higher than it was 12months ago.
The make issues more complicated, the credit rating agencies have started to turn their focus to the US. With still no Congressional agreement on the raising of the US debt ceiling in order to be able to make bond payments, S&P and Moody’s have both put the US on negative watch for a downgrade in the coming months. Moody’s stated there is a 50% chance of a downgrade in the next 90 days and not even a debt ceiling agreement may be able to avoid it, as much of the issues are to do with the long term debt. Credit downgrades or even the threat of them are not good for any currency.
So the US dollar has joined the EUR as currencies not currently in demand and this has meant the AUD has enjoyed a fairly easy ride. Threats to the AUD’s fortunes in the near term remain based around a slower domestic economy and that of its major trading partners. There is evidence of a slowdown in wider Asia, and the Chinese authorities are going to extended lengths to curb growth rates in China , in an effort to curb inflationary pressures.
Adding to a weaker AUD sentiment overtime, may well be the fact that the interest rate market now has the chances of a cut in the cash rate from the Reserve Bank of Australia before the end of the year. This has seen some ground given up by the AUD against a few different currencies, but not so against the USD.
The broader 1.0500/1.0800 recent range remains in place, A break of the 1.0800 resistance would open up the way for another investigation higher and a move such as this is more likely to be driven by US dollar weakness , as opposed to outright AUD strength in the short term.
On Tuesday next week the RBA release the minutes from their last Monetary policy meeting. It these contradict the interest rate market pricing, there is room for reaction upon release. In the US the focus will remain on the Congressional agreement on the debt ceiling, and Manufacturing numbers on Thursday.
The current level of 1.0735 offers good value buying of USD from a historical view point. Should we soon get an agreement on the debt ceiling, the lower the chance of testing the resistance at higher levels.