Thread: Discuss the AUD/USD, NZD/USD , USD/CAD and more

Originally Posted by John Kicklighter

Here we go.

I'm short AUDUSD from 0.6940. Holding off on NZDUSD to get confirmation of trend as I wouldn't want to leverage exposure on a false breakout.

If we don't get at least a modest retracement over the next 36 hours, then I would suspect we have a pretty good trend turn here.

What do you guys think? Lots of activity in the Aussie and kiwi crosses too.

I will place long trades at 0.65 and 0.6 on AUDUSD

6202.0 - Labour Force, Australia, Nov 2008

Employed Persons and Unemployment rate both increase. I think there will be at least a short term bullish

Originally Posted by USAF4ER

6202.0 - Labour Force, Australia, Nov 2008

Employed Persons INCREASE but Unemployment rate INCREASE also. what does this means? What will this affect AUD economic health?

Ha. certainly not clear.

You can have an increase in the unemployment rate if net employment rises if more people enter the workforce outpaces the new jobs.

For this reading you have a different dynamic. You have new jobs being created and old ones being lost. Therefore, you can see an increase in both unemployed and employed people. Usually the indicators that we see each month (like the change US non-farm payrolls) are a net of those people that lost their jobs and those that found new ones. This is likely just a breakdown of this.

Why is it that with the US economy in such a dire state and a huge foreign debt, the USD continues to be so well supported?

Why is it that the AUD/USD rate drops when ever there is negative news on the US market?

Why is the USD regarded as a save haven and gold prices are decreasing?

Why is the USD supported over the NZD and AUD when interest rates on the USD are basically nil?

What's happening is going against everything I have read about foreign exchange and is very confusing. Any explanation would be much appreciated.

Originally Posted by John Kicklighter

Here we go.

I'm short AUDUSD from 0.6940. Holding off on NZDUSD to get confirmation of trend as I wouldn't want to leverage exposure on a false breakout.

If we don't get at least a modest retracement over the next 36 hours, then I would suspect we have a pretty good trend turn here.

What do you guys think? Lots of activity in the Aussie and kiwi crosses too.

Well, the drop from both pairs has been pretty dramatic. Took profit on half my AUDUSD position at 0.6715 and trailing the stop on the second half. Obviously NZDUSD confirmed its trend, but without a retracement I stayed out of it. I would have liked to have been in for this decline; but it didn't fit the rules, so I'm not too concerned.

Looking at other crosses now for the next trade. What do you guys think of AUDJPY?

Originally Posted by nzwoody

Why is it that with the US economy in such a dire state and a huge foreign debt, the USD continues to be so well supported?

Why is it that the AUD/USD rate drops when ever there is negative news on the US market?

Why is the USD regarded as a save haven and gold prices are decreasing?

Why is the USD supported over the NZD and AUD when interest rates on the USD are basically nil?

What's happening is going against everything I have read about foreign exchange and is very confusing. Any explanation would be much appreciated.

Your theory is sound, but you are thinking in absolutes. Sentiment ebbs and flows in degrees. At any one time, you would expect an exchange rate to reflect the true relative value between the two currencies, but speculation over the future of these fundamental trends will unseat the equilibrium and lead to a shift.

What this further means though is that you can come into the market and assume that an academic principal is all of a sudden influencing the market because a group of people has become aware of it. This knowledge may have previously been disseminated to the market or traders could have already priced it in and speculation has moved on to different factors.

As for your specific questions: the dollar is supported because the financial crisis and recession are global; and there is fierce debate over which country will be able to turn itself around first while laying the groundwork for a return of capital into traditional assets. (This is only one simplified factor however).

The AUDUSD exchange rate doesn't move in favor of the dollar on bad data - though it may frustratingly seem that way. First, we have to gauge which indicators are actually important to the bigger economic themes behind the pair and then we need to measure the actual release to the market's expectations for its outcome. Recently, US data has offered in line or positive readings on this basis.

The US dollar is considered a safe haven because its economy is the largest in the world and its market's are extremely deep. So, when everyone is looking for risk free assets, they will go into Treasuries as they know they can conserve their capital and still be able to get out of this market should things go south because it does have such liquidity. From a safety perspective, gold is very volatile (and therefore risky) and there is far less liquidity on both sides of the market.

If the US benchmark is practically at zero, where can it go from here? There is little threat to your interest rates plunging and your returns vanishing. Alternatively, Aussie and New Zealand rates are comparatively high and investors are nervous that they will drop and lead to loses.

Hope this perhaps reconciles some of the market activity with the price action for you.

With the predicted interest rate cut on 29th Jan. Signals look bearish for NZDUSD.

What does everyone else think?

This is probably a stupid question, but here goes. If I am an American and I buy the AUDUSD where does my money go? If I have confidence in the Australian dollar and I buy it does it go into a bank somewhere in Australia and does that give a bank the ability to lend out my dollar in Australia? Does a speculators dollar vs that of a business transaction actually change real economic dynamics of Australia? What percentage of currency trades are speculative?

I was rather drunk with my profits in my long AUDUSD position and missed the turn. I wasn't paying attention to the warning signals. I wasn't on guard for change. I was thinking that the carry trade was safe because the systemic risk was mostly eliminated by the central banks and fiscal stimulous.

It seems though that there was systemic risk to the carry trade, followed by some stabalization, then real economic damage where the demand for physical commodities drops sinking the AUD.

JK, you seemed to state that you thought there would be another leg down in the AUD NZD. Of course you happened to be spot on. Are there any leading indicators that you look at to tell you the coast might be clear for carry trades?

Originally Posted by qed

This is probably a stupid question, but here goes. If I am an American and I buy the AUDUSD where does my money go? If I have confidence in the Australian dollar and I buy it does it go into a bank somewhere in Australia and does that give a bank the ability to lend out my dollar in Australia? Does a speculators dollar vs that of a business transaction actually change real economic dynamics of Australia? What percentage of currency trades are speculative?

I was rather drunk with my profits in my long AUDUSD position and missed the turn. I wasn't paying attention to the warning signals. I wasn't on guard for change. I was thinking that the carry trade was safe because the systemic risk was mostly eliminated by the central banks and fiscal stimulous.

It seems though that there was systemic risk to the carry trade, followed by some stabalization, then real economic damage where the demand for physical commodities drops sinking the AUD.

JK, you seemed to state that you thought there would be another leg down in the AUD NZD. Of course you happened to be spot on. Are there any leading indicators that you look at to tell you the coast might be clear for carry trades?

You know, the big problem with commodity currencies is not the falling demand. The problem is the FED saying it will buy treasuries. This leads people into treasury speculation, I mean huge volume, and creates a huge bubble in $ demand. The only reason to buy treasuries is to sell them easy to the FED later on. Once this bubble burts, the $ will collapse and then shorts in AUD and other commodity currencies are off. I recommend setting firm stops no matter what your positioning.

The bubble will burst because oil producing nations such as saudi arabia signed a deal to purchase treasuries on a portion of petro dollar income. Now that Saudis are in deficit, they will be unable to purchase them. This is a time bomb ticking. One small disturbance have potential to collapse the financial system. There's already pressure from fake economy and mortgages. So basically I recommend firm stops irrespective if your beliefs. I don't know where the money goes, I believe it's just banks, but for sure systemic risk is unlike ever I have seen before hence I recommend firm stops. Chart trading is best these days.

Originally Posted by qed

This is probably a stupid question, but here goes. If I am an American and I buy the AUDUSD where does my money go? If I have confidence in the Australian dollar and I buy it does it go into a bank somewhere in Australia and does that give a bank the ability to lend out my dollar in Australia? Does a speculators dollar vs that of a business transaction actually change real economic dynamics of Australia? What percentage of currency trades are speculative?

I was rather drunk with my profits in my long AUDUSD position and missed the turn. I wasn't paying attention to the warning signals. I wasn't on guard for change. I was thinking that the carry trade was safe because the systemic risk was mostly eliminated by the central banks and fiscal stimulous.

It seems though that there was systemic risk to the carry trade, followed by some stabalization, then real economic damage where the demand for physical commodities drops sinking the AUD.

JK, you seemed to state that you thought there would be another leg down in the AUD NZD. Of course you happened to be spot on. Are there any leading indicators that you look at to tell you the coast might be clear for carry trades?

These are good questions. I hardly ever hear anyone ask the technical questions about what actually happens in their transactions.

For a no-dealing desk, your order goes through the market so that you indeed purchase a fixed amount of currency that is held on your behalf. As for lending that money out, that is to the discretion of the bank, but typically everything above margin is fair game - makes sense since they make their money on interest.

There is really no way to determine what percentage of the trades out there are speculative. Without a central exchange and with the existence of dealing desk model brokers, we can't really measure the group's activity (much less the total) accurately.

Systemic risk is not gone. Credit is still very hard to come across if you are either a consumer or a business; and under such conditions, economies cannot expand. What's more, recessions are still picking up momentum thanks to pain for the consumer sector. We can see the need to be cautious on risk simply from the fact that (though the AUD and NZD may have posted modest rebounds) we are still near the bottom of very massive ranges. This is why you are gambling with very low probabilities when fighting major trends - we end up getting caught in modest retracements looking for gains that equaled the initiating move; and that original drive isn't even done playing out.

Originally Posted by John Kicklighter

These are good questions. I hardly ever hear anyone ask the technical questions about what actually happens in their transactions.


Systemic risk is not gone. Credit is still very hard to come across if you are either a consumer or a business; and under such conditions, economies cannot expand. What's more, recessions are still picking up momentum thanks to pain for the consumer sector. We can see the need to be cautious on risk simply from the fact that (though the AUD and NZD may have posted modest rebounds) we are still near the bottom of very massive ranges. This is why you are gambling with very low probabilities when fighting major trends - we end up getting caught in modest retracements looking for gains that equaled the initiating move; and that original drive isn't even done playing out.

Actually consumer credit has been expanding and hit an all time high in December according to the Federal Reserve. You can see the graph on the back of today's IBD. Business credit is still difficult to obtain though. Obviously you are right that the consumers in the developed countries are feeling a lot of pain. This could take more time to heal IMO.

Should I be going long the AUD now? Volume on the NYSE really ripped on this afternoons rally. It feels to me like a bottom in the stock market has been cemented and risk aversion may be taking a siesta.

Originally Posted by qed

Actually consumer credit has been expanding and hit an all time high in December according to the Federal Reserve. You can see the graph on the back of today's IBD. Business credit is still difficult to obtain though. Obviously you are right that the consumers in the developed countries are feeling a lot of pain. This could take more time to heal IMO.

Ah, interest rates have fallen and credit between banks (Libor and the like) have improved; but the availability of consumer credit is still very tight. This is because the massive liquidity injections and guarantees by the Fed and Treasury have given the banks more money; but they are looking to horde this cash in reserves to prevent their own collapse. What's more, they have raised their lending restrictions to levels not seen in years and are still deciding what to do with many accounts that are in or near default.

I have known a few people with excellent that were shopping for commercial and home loans recently. Some were told they didn't meet the requirements (they would have a year ago) while others that were accepted were simply told that they didn't would be able to cover it because they had a cap over reserves. This is why Obama is saying he looks to focus the next half of the TARP on consumers and businesses.

Originally Posted by qed

Should I be going long the AUD now? Volume on the NYSE really ripped on this afternoons rally. It feels to me like a bottom in the stock market has been cemented and risk aversion may be taking a siesta.

I can't tell you to go long or short. What technical patterns are you looking at. What do you think would keep AUD rallying?

Originally Posted by John Kicklighter

Ah, interest rates have fallen and credit between banks (Libor and the like) have improved; but the availability of consumer credit is still very tight. This is because the massive liquidity injections and guarantees by the Fed and Treasury have given the banks more money; but they are looking to horde this cash in reserves to prevent their own collapse. What's more, they have raised their lending restrictions to levels not seen in years and are still deciding what to do with many accounts that are in or near default.

I have known a few people with excellent that were shopping for commercial and home loans recently. Some were told they didn't meet the requirements (they would have a year ago) while others that were accepted were simply told that they didn't would be able to cover it because they had a cap over reserves. This is why Obama is saying he looks to focus the next half of the TARP on consumers and businesses.



I can't tell you to go long or short. What technical patterns are you looking at. What do you think would keep AUD rallying?

I agree. There is still too much leverage in banks. This may be stabalized temporarily by Obama's plan, but the Option Arm problem will start to expand in the spring and last for another two years. I'm not too optomistic about the financials or housing until the export market improves. Clearly the US is going to be more of an exporting nation in the future.

Originally Posted by John Kicklighter

I can't tell you to go long or short. What technical patterns are you looking at. What do you think would keep AUD rallying?

Well, all I was really looking at was the oversold nature of the AUD and NZD and yesterday's surge in the stock market off of nice support levels.
What caught my eye yesterday was leadership in the NASDAQ and increasing volume in the NYSE off the bottom. So I bought the AUD and NZD simply on the notion of decreasing risk aversion and the ability of the stock market to shake off a lot of bad news.

One thing that tipped me off was the inability of the USDJPY to fall on bad news over the last three days. The SPY was falling and the USDJPY was not. I even tried shorting the JPY a few times but it did not work. That was a noteworthy change IMO. I bought the AUDUSD NZDUSD and USDJPY. I got rather poor entries because I wasn't paying attention but I took some partial profits this morning. I bought the EURUSD also. So far the EURUSD and USDJPY are holding up the best. The NZD and AUD seemed to fall off with the GBP this moring. So I am a little nervous about holding over the weekend.

You asked what would keep the AUD rallying. Here are my opinions on that.

1)The stock market performs better during the first year of the presidents term if an incumbant Republican has been kicked out and a Democrat is elected. I liken this to Hoover Roosevelt where an extremely unpopular president was kicked out. The market rallied 60% in 1933 after Roosevelt took over. Though I don't agree with Obamas policies I believe he could change investor psycology and consumer psycology. And I am not ruling out 12,000 in the DJIA.

2)It is likely IMO that consumers have held off buying autos due to fear of buying a car from a bankrupt company. The Obama administration will likely aleviate this problem in some way. There is pentup demand for autos as financing has been shut down. The TARP provided some funding for GM financing which should help. Also, starting in February the Federal Reserve starts a program of buying auto CDO's to unfreeze the auto lending market.

3)As you pointed out Obama intends to use tarp money to target forclosures. IMO opinion this will be an failure but it could mask the problem over the short term which could improve risk aversion.

4) possible stock piling of commodities by the Chinese.

5) infrastructure projects.

So the big question is whether or not any of this will increase commodity demand in the short term and help the AUD. I could also think of a few negatives for the USD.

I'm am an amateur of course and you are the pro. I find it difficult to pin down exactly what fundamentals the pros are looking at so I would appreciate any criticism in my thinking.

I'm not really looking at technical patterns but I liked those Doji's forming on the USDJPY over the last three days and the divergence with the SPY. The JPY just sopped going down That is reason enough for me to put on the trade.



What do you see as the largest downside fundamental risk for the AUD and do you have a thought on the JPY? Did you pull the trigger on the long AUDJPY?

John & guys do you think any room for a small push for nzd in the next 24-48 hrs because of lack of liquidity with a US day off & will Obama enhance the markets to give confidence which would give short term rally. Ive got order at 55.75 after overnight fall to 54.4 wonder if to optimistic. Also realise likely sell off kiwi leading up to OCR annoucement on thus 29 nz time