AUD/USD and Chinese Reserve Requirements
January 12, 2010
I have been bullish Australian dollars for some time not only because I have witnessed first hand the strength of the Australian economy earlier this year but also because the central bank is slated to raise interest rates again in Feb. Australia’s recovery is largely thanks the expansion in China. Earlier this week, China reported a sharp rise in exports that propelled the country into the ranking of the world’s #1 exporter. This is a huge positive for Australia and the Australian dollar because China has been hungry for Australia’s commodities.
This morning, China also raised their reserve requirement to cool their economy (I wish the U.S. was in the same enviable position) and JP Morgan published this awesome chart illustrating the correlation between China’s reserve requirement and the AUD/USD. According to their report:
The sample covers 19 increases since July 2006. As is clear, commodities on average appreciate and the dollar depreciates following a tightening in reserve requires. The most consistent performer is AUD, which appreciates 75% of the time following a reserve hike.
Technically the 9120 level represents decent support for the AUD/USD and I think any losses will be limited to that level. Next stop for AUD/USD should be 94 cents.
chinareserveaud
AUD/USD Chart:
Posted in Australian Dollar, aud/usd, australian dollar forecast, chinese reserve ratio
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January 12th, 2010 at 1:52 pm
On your December 16, 2009 blog entry you mentioned
>>Further Losses in AUD
and now this, so which one is it ?
January 12th, 2010 at 11:08 pm
Much appreciate this info Kathy,
Thx !
January 13th, 2010 at 5:29 am
Not trying to burst another bubble, Why do the free economies want so much reliance on China — a communist country? From my perspective China exports are mostly a bunch of cheap commie junk.
January 17th, 2010 at 5:22 am
Kathy, do you believe the Chinese figures? Many expert China watchers are suspicious that the data from there, and therefore the success story, is grossly exaggerated. Since there is no way to prove or disprove the accuracy of the data perhaps it doesn’t matter when it comes to trading. After all something is going on there even if the data isn’t as great as claimed.
January 18th, 2010 at 8:33 pm
I guess whether or not the Aussie goes up or not relies on whether the Chinese government really cools DOWN their economy. The JP Morgan reports looks like the idea that “even the Fed tightens this year, 2010, the stocks are still gonna go up”. But my concern is that the Chinese government is fighting to reduce their industrial production as there are simply too much steel being produced. So if they manage to do that, I think the Aussie would cool DOWN with it.