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Analytics, News, and Forecasts for CFD Markets: currency news — 24-03-2024.
China's Premier Li Qiang spoke on Sunday at the China Development Forum in Beijing. He said that the nation’s inflation rate and the central government's debt burden are relatively low, leaving more room for further macro policy steps, per Reuters.
Key quotes
“Aims to increase domestic demand.”
“All domestic and foreign businesses will receive equal treatment under policies aimed at boosting domestic demand.”
“China's low inflation, low central government debt ratio means there is ample room for macro policy.”
“Promised to improve market access, supply and demand matching, and cross-border data flows.”
“Issuance of ultralong special treasury bonds worth 1 trillion yuan will effectively stimulate investment and stabilize economic growth.”
“Measures taken to defuse property and debt risks have proven effective.”
“Working to prevent system risks, push for long-term and healthy development of China's economy.”
Market reaction
At the time of writing, the AUD/USD pair is trading around 0.6517, up 0.04% on the day.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Japan's top currency diplomat Masato Kanda, who will instruct the BOJ to intervene, when he judges it necessary, warned that he will take appropriate steps to respond to the excessive weakness of the Japanese Yen without excluding any measures.
Key quotes
“Have been closely watching FX moves with a high sense of urgency.”
“Will take appropriate steps to respond to the excessive weakness of Yen without excluding any measures.”
“Yen’s current weakness is due to speculation, not reflecting fundamentals.”
“Current yen weakness does not reflect fundamentals.”
“Yen weakness based on speculative moves has a negative effect on the economy.”
“Yen weakness from speculative moves is not good under any circumstances.”
“Says he doesn't have a specific forex level in mind when asked about 'defense line’.”
“Will make a comprehensive decision looking more at whether there are excessive moves rather than levels.”
“Sudden forex moves are not desirable.”
Market reaction
Following the above verbal intervention, USD/JPY was trading at 151.10, losing 0.24% on the day.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- AUD/USD trades on a weaker note near 0.6512 in Monday’s early Asian session.
- Fed’s Powell said officials want to feel more confident that inflation is headed toward the central bank’s 2% target before cutting the rates.
- The further positive development surrounding Chinese macro policy could lift the Aussie.
- The Australian February CPI inflation data and US Q4 GDP numbers will be in the spotlight this week.
The AUD/USD pair finds some support above the 0.6500 mark during the early Asian session on Monday. The pair edges lower amid the further gains of the US Dollar (USD). Investors will monitor the Australian monthly Consumer Price Index (CPI) for February and the US Gross Domestic Product (GDP) for the fourth quarter. At the press time, AUD/USD is trading at 0.6512, losing 0.03% on the day.
The US Federal Reserve (Fed) policymakers indicated that they will be in a position to cut interest rates when they have confidence that inflation is progressing towards the 2.0% target. The Fed Chair Jerome Powell said during the press conference that a surprise increase in unemployment could prompt the Fed to lower rates. The Fed also stuck with its earlier forecast for three rate cuts before the year's end based on its dot plot.
On the other hand, China's Premier Li Qiang said on Sunday that the nation’s low inflation and low central government debt ratio means there is ample room for macro policy. The Chinese government will issue ultralong special treasury bonds worth one trillion yuan, which will effectively support investment and stabilize economic growth. Furthermore, the Chinese authorities will work to prevent system risks and push for long-term and healthy development of China's economy. The further positive development surrounding Chinese stimulus measures and macro policy could boost the China-proxy Australian Dollar (AUD) against the Greenback.
Market players, we will keep an eye on the Australian CPI inflation data on Wednesday, which is expected to show an increase of 3.6% YoY February from 3.4% in the previous reading. On Thursday, the Australian February Retail Sales and the US GDP growth numbers for Q4 will be released. Traders will take cues from these events and find trading opportunities around the AUD/USD pair ahead of the Good Friday holiday on Friday.
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