(18/18)
There are many variables explaining forex dynamics
Their importance evolves over time, as I have demonstrated here
Now you have a better idea of what you should pay attention to (is it RBA or commodities now?)
I hope you learned something new, full report to come!
(17/18)
In fact, as we entered Covid, watching commodities (BCOM) became more important than sentiment (EEM) for AUD
Note the crossover below:
So what's the takeaway?
While monetary policy can be a key driver of exchange rates, RBA impact on AUD has been WEAKENING over time https://t.co/Kj4zHip6YD
(16/18)
Today, BCOM has been having a stronger effect on AUD/USD than 2+ decades ago
And as we talked about earlier, this was likely due to Australia's massive trade balance surge after Covid as a key exporter (especially to China) https://t.co/MjxaP6f8AK
(15/18)
And again, we can see how the relationship between AUD/USD and BCOM evolved over time (while controlling for the other variables)
Her is a snapshot of the very first subset (so the first 36 months of the data being regressed)
Not quite as tight as EEM https://t.co/btAQWgNcCx
(14/18)
I zoomed in on 2016+ so you can see how AUD/USD started paying more attention to commodity prices after Covid (in the form of BCOM)
This occurred as Australia's trade balance swelled and exports far outpaced imports https://t.co/XV9Pnb8hR1
(13/18)
And this is the same variable, but fast-forward to today
The relationship is still tight, and much more important than RBA-Fed policy direction
But, we still have 1 last variable to look at: BCOM https://t.co/o9YOBt41j1
(12/18)
Just like before, here is the impact of EEM on AUD/USD earlier in the cycle
Notice how tight the dots are around the red line, which is the regression = a very strong relationship https://t.co/oNqkRkwds1
(11/18)
What things? How about market sentiment?
This is the influence of EEM on AUD/USD over time. Note how much it rose after 08 as central banks injected liquidity into markets
In other words, during this time, AUD/USD paid more attention to EEM and less to RBA-Fed policy https://t.co/vAQAZWEMtO
(10/18)
But this is the same variable, fast-forward to the most recent time period (now)
The red line is now mostly flat and the dots are all over the place
= no key relationship b/w RBA-Fed policy driving AUD/USD
Therefore, you should pay attention to other things https://t.co/Sg1kZVIO5h
(9/18)
Here is what I mean:
This is a regression of AU-US bond yield spreads on AUD/USD around peak influence (around the time of the 2008 Crisis)
Notice how the red line is sloping upward and the blue dots are tight around it (mostly) = solid relationship https://t.co/gMTmJZTIuc
(8/18)
Here is the effect of AU-US bond yield spreads (dark red line) on AUD over time (controlling for EEM, BCOM)
What do you notice?
The ability of RBA policy to influence AUD/USD has been SHRINKING alongside NARROWING AU-US yield premiums (it's actually no longer a premium) https://t.co/McWZTD3bUR
(7/18)
What I want to know is how RBA, EEM, & BCOM importance CHANGE over time
In other words, as an AUD/USD trader, what should you be paying attention to right now?
We can solve this with a rolling regression = analyzing every 36 months in steps of 1
Allow me to explain: https://t.co/bn0pCCeD2X
(6/18)
With that in mind, we can now model AUD/USD using the 3 variables (dark black line)
The grey line is actual AUD/USD M/M
Overall, the regression has about a 70% goodness of fit (out of maximum 100%)
The 3 variables together explain about 70% of the variation in AUD/USD https://t.co/Kys7vmgZd0
(5/18)
But, we might run into an issue where there is too much correlation b/w the variables
That will make it hard to tell which is having a true effect
We can test that with the Variance Inflation Factor
All values are far below 10 (a key threshold), so this passes the test https://t.co/GyqqpqSFWE
(4/18)
Let's run a regression!
Here is a list showing the effect of a 1 percentage point increase in the following variables on AUD/USD (M/M):
AU-US Bond Yield Spreads: +0.03
EEM: +0.34
BCOM: +0.22
Notice that all variables are significant
And, the RBA effect is very tiny https://t.co/zgCNoBsXVv
(3/18)
Can you think of another AUD influence?
How about commodity prices?
Australia is a key exporter of iron ore and certain agricultural goods (especially to China)
This is AUD vs BCOM (Bloomberg Commodity Index), and it's another tight relationship https://t.co/3oyg9nxAH2
(2/18)
But, don't forget that market sentiment is another factor that drives the Aussie (think global economic cyclicality)
This is AUD/USD vs the MSCI Emerging Markets Index (EEM)
At first glance, this is a much stronger influence than RBA-Fed policy (it's much tighter) https://t.co/MBP5QRGTyr
(1/18) Big Thread Alert!
This is for $AUDUSD #AUD traders (I promise if you aren't, there is something cool here to learn)
Is monetary policy a key driver for exchanges? (think RBA vs Fed)
Here is AUD vs AU-US 2-year Govt. Bond Yield Spreads (M/M) - outliers removed since 2003 https://t.co/ObN1ozTqAn
CAD still riding the positive momentum of the surprise BoC hike this week, helped by a softer US dollar after an early warning signal of potential job stress reappeared.
USD/CAD testing long-term trendline support.
https://www.dailyfx.com/news/usd-cad-price-outlook-usd-cad-tests-major-support-as-usd-eases-20230609.html
Its a massively busy week next week: #Fed, #ECB and #BoJ rate meetings, US #CPI and PPI as well.
Given souring fundamentals in Europe and core inflation heading in the right direction, markets may soon revise ECB rate expectations lower while markets expect a further 100 bps… https://t.co/4iMzWOVPBO
https://www.dailyfx.com/news/forex-usd-jpy-price-forecast-yen-slides-as-boj-sees-little-need-to-tweak-ycc-in-june-20230609.html
USDJPY Update:
The Japanese Yen slid this morning on news that the BoJ sees no need to tweak the Yield Curve Control Policy in June. Will markets get the message? @DailyFX
#Japan #jpy #Yen #USDJPY #Ueda
#BOJ #centralbanks #MonetaryPolicy #japanese
Is the #USDollar's run over or can US #CPI extend upside? Massive week ahead for the #USD... #DXY @DailyFX
https://www.dailyfx.com/news/forex-usd-price-forecast-dxy-holds-its-breath-ahead-of-big-data-week-wv-20230609.html
Golds rally yesterday ran into resistance at the weekly highs around $1970.. Failure to break here today could see price remain rangebound between $1940-$1970 heading into a data filled week. Hope you caught my thoughts @DailyFX
#gold #XAUUSD #goldpricetoday #goldprice #USD https://t.co/iW643iSXSY https://t.co/9Q2DMkZNfr
Thursday's -0.76% drop in the US Dollar (DXY) was quite rare
That's about -1.52 standard deviations from the average (since 1990)
There was clear rejection at resistance (23.6% Fib Retracement at 104.114)
We do have a Bullish Golden Cross in play b/w the 20- and 50-day SMA https://t.co/swUkpOb5El
Canadian Dollar Outlook: $USDCAD at Risk of Further Losses on Hawkish BoC but Fed May Be a Spoiler #trading #forex $USD $CAD https://t.co/e7zvDdYApN https://t.co/FNlasRfQU9
Silver Prices Draw Support from US Dollar Weakness and Falling Yields, US CPI Eyed #trading #silver #FED $XAGUSD $USD https://t.co/YsQhKkI0KA https://t.co/lDx4brPvGA
Japanese #yen building momentum against the #USD... Nice technical pattern being formed short-term. #USDJPY #GDP #joblessclaims #USDollar #FOMC #forextrading
https://www.dailyfx.com/news/forex-usd-jpy-price-forecast-yen-bid-on-japanese-gdp-us-jobless-claims-wv-20230608.html
Euro zone enters technical recession out of nowhere as Q4 '22 and Q1 '23 data gets revised lower
Euro based setups explored ahead of next week's #ECB rate meeting
https://www.dailyfx.com/news/eu-enters-recession-eur-usd-eur-gbp-and-eur-jpy-price-setups-20230608.html https://t.co/cIRpdsaCk5
BREAKING NEWS!!! Initial jobless claims data hurting #USD... Resilient jobs market showing signs of fragility. #Fed rate pause expectation back up to 75% post-release. Next up US #CPI next week. #DXY #USdollar https://t.co/dDNtAPjDC9
https://www.dailyfx.com/news/forex-gold-prices-at-risk-of-freefall-below-the-100-day-ma-20230608.html
Gold Update:
Gold prices enjoying a bounce this morning toward $1950. Will recessionary fear rekindle safe haven appeal or does further downside beckon? @DailyFX
#Gold #XAUUSD #goldprice #Commodities #USD #Yields
#pound could be in for a move lower in the week's to come if the UK housing market is anything to go by. #GBPUSD #GBPJPY ... Find out more @DailyFX below:
https://www.dailyfx.com/news/forex-gbp-usd-price-forecast-uk-housing-prices-a-sign-of-future-pound-weakness-wv-20230608.html
At -2.02%, this was the worst day for the Nasdaq/Dow ratio since October 27th (7+ months ago)
We are still in a clear uptrend
But, note resistance around the April 2022 peak
Coinciding with the surge in longer-term major bond yields - https://t.co/V0O5om0e8I https://t.co/83vctm7Vno
Here is a fun fact for today:
If you average US, German, Japanese, Canadian, Australian and New Zealand 10-year bond yields...
Today was the best day (+3.78%) since December 20th
This follows unexpected rate hikes from the #RBA and #bankofcanada
No surprise stocks fell today https://t.co/02Fanz69YH
Gold and Silver Prices in Peril as Yields Surge, Technical Setups on $XAUUSD and $XAGUSD #trading #gold #silver #FED $GLD $USD https://t.co/GIxBBvdOiU https://t.co/VPJV5XnYkz
Gold Futures in Freefall as US Treasury Yields Surge, Trendline Support Must Hold, Otherwise a Deeper Correction Could Get Underway $XAUUSD #trading #gold https://t.co/0piVhGNjnH https://t.co/Os7zQCa36d
US Dollar Wobbles but Outlook Brightens, $EURUSD and $USDJPY Embark on Divergent Trends #trading #forex $USD $DXY https://t.co/0piVhGNRdf https://t.co/gBxS7u75O6
https://www.dailyfx.com/news/bank-of-canada-comes-out-swinging-with-25bps-hike-usd-cad-slides-20230607.html
Bank of Canada:
Bank of #Canada came out swinging delivering a 25bps hike. The bank did remove language from April regarding further hikes if neccesary. Is the cycle at an end? @DailyFX
#USDCAD #CanadaNews #CanadaOnFire #inflation #interestrates #BoC
#USDCAD touching key support after the @bankofcanada 'hawkishly' hiked #interestrates. From a technical analysis standpoint, we seeing follow through from the death cross earlier this week... #CAD #loonie #BOC https://t.co/vyJ49Yfu41
https://www.dailyfx.com/news/the-turkish-lira-fell-over-7-this-morning-as-potential-policy-shift-gains-momentum-20230607.html
Turkish Lira Update:
The Lira slumped 7% this morning. Is the lack of intervention the first sign of a policy pivot under the new Finance Minister? My thoughts @DailyFX
#lira #Turkey #usdtry #turkiye #Erdoğan #CentralBanks #interestrates
#EURUSD on the brink of a short-term breakout. Find out more @DailyFX as I discuss: #euro #EUR
- China
- German industrial production
- ECB
https://www.dailyfx.com/news/forex-eur-usd-outlook-euro-breakout-immanent-ecb-officials-in-focus-wv-20230607.html
USDTRY jumps around 6% and hits new all time high above the 23.0000 mark as State Banks relax defences... @DailyFX
@DailyFXTeam
#Turkey #TurkeyTravel #Lira #Erdoğan #inflation #usdttry https://t.co/JcEXHWyHQu
USDTRY jumps around 6% and hits new all time high above the 23.0000 mark as State Banks relax defences...
#Turkey #TurkeyTravel #Lira #Erdoğan #inflation #usdttry https://t.co/M6y9rFBgsz
https://www.dailyfx.com/news/forex-the-bank-of-canada-a-trader-s-guide-20230606.html
Bank of Canada:
The Bank of Canada rate decision will be out later today in what could prove to be a pivotal meeting. Let's take a look at the formation,history and mandate of the Canadian #CentralBanks @DailyFX
#Canada #loonie #USDCAD #Canadian #banks https://t.co/vbMHgbB2Td
https://www.dailyfx.com/news/forex-the-bank-of-canada-a-trader-s-guide-20230606.html
Bank of Canada:
The Bank of Canada rate decision will be out later today in what could prove to be a pivotal meeting. Let's take a look at the formation, history and mandate of the Canadian Central Bank.
#Canada #CentralBanks #loonie #USDCAD #Canadian
#China's exports fell much faster than expected due to higher global interest rates and inflationary pressures. Highlights concern around fading global demand thus placing added pressure on local Chinese demand. Manufacturing PMI's recently echoed similar sentiment. https://t.co/wubBeQKnsi
Australian Dollar just a smidge lower after cautiously softer-than-expected local GDP data
Headline rate was 2.3% y/y vs 2.4% seen and 2.7% prior
A reminder that yesterday the #RBA surprised markets with a hike and left door open to more if needed
https://t.co/Jg7rvfvCCA https://t.co/h9cqKZ8Oph