Exogenous Scores

AUD / USD

Scorecard 1: Relative GDP

Projected U.S GDP 2.3%

 

Projected AUS GDP 2.1%

= - 0.2%

 

Sell AUD / USD 

Deflation = RBA Easing Bias (Low Rates) 
Inflation = FED Tightening Bias (High Rates)

Balance of Payments 

AUD / USD

Trade Analysis

Iron Ore prices

When looking at Iron Ore prices, we look at the average percentage change in monthly prices, in order to familiarise ourselves with what is kind of price changes are normal and abnormal. 

The Average positive monthly change in rising prices is 7% to 10%.

The Average negative monthly change in falling prices is -7% to 9%. 

We look for fundamental highs and lows outside the bounds of normality to identify extreme inflationary or deflationary prediction's for the Australian Economy. 

Rising Iron Ore Prices = High Australian dollar demand = Net Exporter = R.O.W Currency Reserves decreasing = Stronger AUD exchange rate ratio = BUY Currency.

Lower Iron Ore Prices = Low Australian dollar demand = Net Importer = R.O.W Currency Reserves Increasing = Weaker AUD exchange rate ratio = Sell Currency.

Scorecard Analysis 

  

Monthly Iron Ore Prices

Interest Rate Differentials

Long AUD / USD

As the gap between Interest Rates in Australia and the U.S. widens this is inflationary for Australia.

 

Here we buy AUD/USD, however, our conviction decreases as the gap

widens because authorities will more than likely lower rates in order to avoid extreme inflation in Australia from capital inflows.

Short AUD / USD

As the gap between Interest Rates in Australia and the U.S. Narrows this is deflationary for Australia.

 

Here we sell AUD/USD, however, our conviction decreases as the gap

narrows because authorities will more than likely raise rates in order to avoid extreme deflation in Australia from capital outflows.

Australia Rates 1.00% | U.S Rates 2.25%

Stock Market Returns

As the ASX priced in U.S Dollars rises, we have an inflationary score to BUY AUD/USD.

 

However, our conviction decreases once we experience extreme appreciation in the ASX as the Reserve Bank of Australia is likely to raise interest rates to contain high domestic 

inflation caused by bullish consumer sentiment.

Higher interest rates will cause deflation, therefore, our long bias decreases at extreme inflationary readings.

Long AUD / USD

As the ASX priced in U.S Dollars decreases, we have a deflationary score to Sell AUD/USD.

 

However, our conviction decreases once we experience extreme deflation in the ASX as the Reserve Bank of Australia is likely to cut interest rates to ignite domestic inflation.

Lower interest rates will cause inflation, therefore, our short bias decreases at extreme deflationary readings.

Short AUD / USD

When score carding for the ASX in R.O.W terms using the U.S dollar, we are looking for an inflationary and deflationary stock market that will cause Australians to buy or sell the AUD/USD exchange rate in order to protect their wealth from depreciating on an international level.

 

We outline the highest price the ASX has reached in U.S dollar (R.O.W) terms. This high was achieved on the 14th December 2009, when the ASX reached 6208.48.

Deflation | If the value of the ASX in U.S Dollars has decreased below the historical high of 6208.48, Australian's are becoming relatively poorer Vs the R.O.W as the value of their wealth in R.O.W terms has fallen. 

Inflation  If the value of the ASX in U.S Dollars has increased above the historical high of 6208.48, Australian's are becoming relatively wealthier Vs the R.O.W as the value of their wealth in R.O.W terms has increased. 

Scorecard | On our scorecard, 0 represents the 2009 ASX high of 6208.48

Our scores are looking at the percentage change in Australian wealth Vs the R.O.W.

Deflation = Sell AUD/USD as Australian's will buy U.S dollars to protect the falling value of their wealth in R.O.W U.S Dollar terms.

 

When we have extreme deflation our short conviction decreases as the central bank will lower interest rates to help boost stock market prices and generate inflation.

Inflation = Buy AUD/USD as Australian's will Sell U.S Dollars to buy Aussie Dollars to protect their wealth from because of inflation in R.O.W U.S Dollar terms.

When we have extreme inflation our long conviction decreases as the central bank will raise interest rates to help cool down stock market prices and cause deflation.

 

  

 

 

ASX 4602.65 | -25% From 2009 High 

Final Exogenous Analysis

AUD / USD Final Score

EUR / USD

GBP / USD

NZD / USD

USD / CAD

USD / JPY

USD / CHF

USD / NOK

USD / SEK