Those who trade forex might benefit from knowing that the AUD/USD declined on Dec. 30, extending its recent losses as global market participants responded to speculation surrounding the tapering of the Federal Reserve.
The AUD/USD recorded its tenth weekly drop in a row on Dec. 27, according to Bloomberg. This period of consecutive losses was the longest since the previous system of controlling exchange rates was eliminated in 1983. So far in 2013, the Australian dollar has depreciated 15 percent, which has put the emerging market currency on track to record its most severe annual drop since 2008.
Speculation surrounding Fed tapering crucial
The latest decline in the value of the Aussie was attributed to increased hopes that the Fed will continue to roll back its bond purchases amid data pointing to strength in the U.S. economy, the media outlet reported.
Another factor that has helped to support the perception that economic conditions in the United States are improving is the fact that on Dec. 27, the yields on U.S. Treasury Bonds finished the trading session above 3 percent, according to The Wall Street Journal.
The yield on these bonds closed at 3.004 percent, which was their highest since July 2011, the media outlet reported. Traders recently told the news source that the increase that U.S. interest rates enjoyed on that day helped put downward pressure on the Aussie and pushed the greenback higher.
Before those involved in forex trading had a chance to respond to the latest batch of evidence that the U.S. economy is improving, the Fed announced earlier this month that starting in January, it will reduce its regimen of monthly asset purchases to $75 billion worth of debt-based securities. This decision was announced at the conclusion of a two-day meeting of the Federal Open Market Committee on Dec. 18.
On the following day, the results of a Bloomberg poll were released, which contained a prediction that the bond purchases will be reduced by $10 billion at each of the coming seven meetings of Fed policymakers.
The timeline that will be used for gradually reducing these transactions has been the subject of much speculation, and the pace that is harnessed for winding down the purchases could have a substantial impact on the value of the U.S. dollar relative to other currencies.
“The big theme has been Fed tapering,” Janu Chan, who works for St. George Bank Ltd. in Sydney as an economist, told the news source. “With that set to continue into 2014, we’ll expect the Aussie to come under some further pressure over the next year.”
Several experts provide bearish predictions for Aussie
Chan is not the only market expert who has provided bearish predictions for the Australian dollar, as several analysts have become more pessimistic about the future prospects of the currency, according to CNBC.
“We are looking for further losses in the Australian dollar next year but its sell-off against the greenback should be gradual and limited to 85 cents,” Kathy Lien, managing director at BK Asset Management, told the media outlet. “There are a significant amount of macro factors that should drive the Australian dollar lower next year, but we do not see a material slide beyond 85 cents.”
It was recently forecast by Stephen Miller, a BlackRock money manager in Sydney, that the currency of the Asian Pacific nation will move closer to $0.80, The Sydney Morning Herald reported.
“The Aussie will go lower,” Miller told the news source. “Once it gets to 80 cents, you start thinking the Aussie is worth a look from the long side, but I wouldn’t be trying to trade it from the long side before US80¢ [cents].”
Impact of RBA policy
One factor that could serve to help push the AUD/USD lower is the policy actions of the Reserve Bank of Australia, which has cut its benchmark rate by 225 basis points since November 2011, the media outlet reported. The nation’s central bank has reduced its key rate by 50 points in 2013 alone.
The RBA has indicated its desire for more robust economic growth, and has publicly declared that it wants to devalue the currency of the Asian Pacific nation, according to CNBC. Earlier in December, Glenn Stevens, governor of the RBA, told The Australian Financial Review that he wanted the Aussie to move closer to $0.85.
Those who trade forex might benefit from knowing about the recent sharp drop in the AUD/USD, as well as the predictions made by market experts that the currency pair will continue to decline.
The post Speculation Surrounding Fed Tapering Crucial appeared first on | HY Markets Official blog.
Article provided by HY Markets Forex Blog
