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Monday, May 14, 2012

Is the Aussie ready to bounce?

Now that the Australian dollar dropped to parity with the U.S. dollar many are wondering if this level will work as support or if the value of the southern pacific currency will continue to move south.
As we know the dilemma is not an easy one to answer, in fact, nobody knows what the next move will be in any currency since there's such a variety of  participants in the forex market that only Central Banks have the power to really move a price.
Most of the times, even their efforts to depreciate or appreciate a currency has a short term effect and market always win the battle. Anyway RBA has never manipulated the market and Prime Minister Gillard recently stated that will never act in such direction, beside that, a weaker AUD can only benefit the Australian economy that recently showed signs of difficulty.

Home loans in Australia are moderately rising (+ 0.3 %) despite the prediction was of a substantial decrease of  2 % and the move from the People's Bank of China of cutting reserves ratio requirements is the equivalent of an interest rat cut.
The surprise from investor may help boosting equities for a while and as we know, when equities rise, riskier assets like the AUD rise with them.

The only question is, how long will markets need to be stimulated with emergency liquidity injections?                     It seems like Central Banks around the world are acting according to a mutual agreement, whenever liquidity is required to keep economies buoying there will be a major Bank providing it; first was QE from the FED, then Japan and Europe and lately China.
For how long will this game keep working and what will happen when the game breaks down?       

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