China Rates Hikes could Take Down Australian Dollar

TheAustralian Dollar is under pressure overnight following a rate hike by China’s centralbank. The 25 basis point rise to 3 percent is the second attempt in just over amonth to fight against inflation. The interest rate increase is an attempt toslow down the world’s number 2 economy.

TheAustralian Dollar is under pressure overnight following a rate hike by China’s centralbank. The 25 basis point rise to 3 percent is the second attempt in just over amonth to fight against inflation. The interest rate increase is an attempt toslow down the world’s number 2 economy.

Althoughthe rate hike did not come as a surprise some traders still feel that risingrates will mean more pressure on higher risk currencies. The Australian Dollaris one of these currencies which would be vulnerable to a break.

Australia boasts China as a huge trading partner. Aslow down in the Chinese economy could hurt demand for Australian rawmaterials. This would be on top of forecasts for a lower GDP because of recentflooding conditions.

Investorssold the Aussie following the news of the rate hike. The break was orderly asif the rate hike was expected. The frequency of the rate hikes by Chinashould be watched carefully over the near-term. Frequent rate hikes may beindicating that Chinese inflation may be getting out of control. The more frequent the rate hikes, the greaterthe pressure on the Australian Dollar.

It may notbe apparent at this time, but it is possible that China may be responsible for thestart of a sell-off in the Australian Dollar.

Technically,the Aussie can best be described as rangebound with a bias to the downside.Look for traders to lean toward the short-side as long as the minor top at1.0200 remains intact. A break through the minor bottom at 1.0103 could triggerthe start of a correction to 1.0033 to .9993.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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