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AUD/USD: Looking to AUD/JPY for more momentum
By Sean Lee || March 31, 2011 at 21:56 GMT
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I’ve read two reports suggesting that the big AUD buying flows are now drying up but it’s certainly not trading like they are. Pullbacks have been quite shallow, but as I said yesterday, this is probably more about AUD/JPY buying by hedge funds afraid of missing a boat.
Local dealers are happy to play from the short-side in the morning in expectation of some profit-taking and then wait and see what the Tokyo market does with the JPY crosses.
Corporate bids are firm near 1.0200 and there’s supposedly another barrier at 1.0375. Playing the edges of this range with a distinct bullish bias would seem like a sensible strategy.
Is the RBA worried about the AUD ? Am looking to see what people’s thoughts are on this as I personally do not think it is. If we assume that the commodity price rises are hear to stay, then we are essentially exporting inflation in raw material costs to overseas manufactures. If we were to assume a 20% increase in raw material prices this would equate to approximately 5-8% increase in end product prices. If we then imported these manufactured goods back to Australia and the AUD has risen 20%, then we would be importing deflation (approx 15% on those same goods) which in turn would create downside/neutral pressures on interest rates, higher disposable incomes and in turn fuel further room for property prices to stabilise or increase . I am assuming of course importers pass the savings on. Thoughts ?
Hi sean, Sorry about an off topic question. I have been trading a system (self creation) for the past six months with an avg. return of 5% per month. I hear a lot of talk about guys making “mega pips”, etc….But I guess what they don’t like to mention are mega losses!
I ve been at this game for three years full time, and it seems like only reasonable returns are possible, with money management being a huge part of the equation.
From yr years of experience what are your thoughts? Thank you and the best.
Good morning, Sean. I don’t quite understand your comment about “local dealers are happy to play from the short-side in the the morning in expectation of some profit-taking …”. Correct me if I am wrong but the AUD (both AUD/USD and AUD/JPY) seems to be going up right now (prior to the Tankan release in about an hour from now). What part of this situation do I not see correctly?
Totally agree Sam. Mega pips only come with mega risk. I use a moderate amount of leverage with what I consider to be decent risk parameters and I’m also aiming at similar returns to what you make, over a year rather than a month in my case
Hi Solange. AUD/JPY in partic is at high levels and its usual to see some profit taking in early trade before Tokyo starts. Interbank dealers will normally try and guess the session trading range and their thinking earlier this morning was that the first move could be down towards 10300 before perhaps another test of 10375, that’s all I meant
Tony, also for consideration with the RBA is that the higher AUD helps keep inflation in check and no need to keep raising interest rates in a two part economy where mining does well but everything else cannot handle higher rates.
Agree KT. I too am overwhelmed at the strength of the AUD, but with a nascent US recovery, international disasters and both mining and agriculture doing well, it wouldn’t surprise me if the AUD had much further upside to 1.15 – 1.20.
Sean, as always thank you for your informative and honest reply. One more question if you don’t mind. What are the returns generated by traders working for banks or prop desks? Thank you.
Hard to answer that Sam in that they don’t have a specific allocation of capital. Market makers and dealers were normally happy to make about 3 to 5 million whereas prop traders could make over 100 million but taking massive positions of course.
In the hedge fund world, anyone who can demonstrate a consistent ability to make 15% per annum without any significant drawdowns (losses) will attract plenty of wealthy investors