Forex trading resulted in the AUD/USD recovering on Jan. 27, after it recently dropped to its lowest point in three-and-one-half years.
The currency pair managed to appreciate during the day, as the downward pressure on the Aussie – that was created by concerns about emerging markets – started to dissipate, according to Investing.com. The AUD/USD was valued at 0.8730. This represented a 0.55 percent gain for the day, and happened after the exchange rate for the pair fell to as little as 0.8659 on Friday, Dec. 24. This was the lowest value for the currency pair since July 2010.
AUD/USD encounters challenges
The Aussie managed to encounter some serious challenges late in the prior week, after data revealed that in January, Chinese manufacturing contracted by more than expected, the media outlet reported. This report was important to the value of the AUD/USD since China is the largest trading partner of Australia, and emerging market economies could face headwinds as a result of Chinese business conditions deteriorating.
The AUD/USD did well earlier last week, rising to 0.8850 on Jan. 22 as global market participants speculated that another interest rate cut from the Reserve Bank of Australia would be less likely to happen as a result of a sharp rise in inflation, according to Reuters.
In addition, since the state of the Aussie is expected to be largely dependent on the actions taken by the RBA, some believe that the emerging-market currency will continue to decline in value this year, the media outlet reported.
Fed tapering key to emerging-market currencies
The currencies of these fledgling nations could encounter additional headwinds based on how quickly the Federal Reserve opts to reduce its bond purchases. They have already been pushed lower in value as a result of the Federal Open Market Committee announcing in December that it would cut its stimulus, according to Investing.com. The pace of tapering that is used by the central bank to lower these transactions could have a significant impact on the value of the U.S. dollar.
The more bonds the Fed buys every month to stimulate the economy, the more rapidly the U.S. money supply will grow. This expansion of the amount of money in circulation could easily put downward pressure on the greenback. If the central bank moves to lower these purchases more quickly, it could help provide tailwinds to the U.S. dollar. This, in turn, could result in those who engage in forex trading pushing the AUD/USD higher.
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