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CURRENCY WATCH


FX


On a long term basis the A$ has been picking up against the US$ since the beginning of 2001 from 0.48 to 1.10 in July 2011. Te recession of 2008/2009 had led to a considerable draw down from 0.9850 to 0.60 against the US$ before picking up again to the historically high level of 1.1075. At the time of writing (June 10, 2013) the A$ is valued at 0.9480. Tese historical price movements are showing to what extend trends in A$ are able to persist.


Since the beginning of 2011, we have been in a consolidation pattern within a range between 0.9388 and 1.1075.


Chart.5 Australia contributions to GDP growth


In this overall environment the RBA has lowered its cash rate to a level of 2.75% which is a record low level. Our expectation is for further loose monetary policy with the possibility for further rate cuts. Te fact that the RBA is still in an easing process while in the US discussions about a tighter monetary policy have started, has led to the recent and significant A$ weakness. Te future impact of the expected central bank policy doesn`t support a pick-up in A$ valuation in the mid-term.


Beside the economic and fundamental analysis of the Australian economy and the A$, it is very important to analyse the currency from a chart-technical point of view.


As we see in the chart we had a midterm trade corridor between 1.0082 and 1.0620 from July last year until the beginning of May. Aſter breaking the support level of 1.0082 we saw a massive draw down towards 0.9435. From


Chart.7 Dow Jones-UBS Industrial Metals Index


this level, short term, it is easily possible to get a pull back towards the 1.0000 level, but midterm we are expecting a sustained break below the 0.9388 level, as we have already broken below the recent lows at 0.9684 (November 2011 low) and 0.9582 (June 2012 low).


Terefore our expectation for the year end is around 0.85 to 0.80 against the US$. Tis target is in line with the described central bank policy and the global economic situation.


Chart.6 Monthly chart AUD/USD Dieter Merz


FX TRADER MAGAZINE July - September 2013


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