Foreign Exchange

Have you noticed a the current trend with interest rates? US interest rates are tumbling fast, while the Australian interest rates have been inching up. How can you profit from this trend? Below is a prospective strategy using currency warrants from Macquarie Research:

Ever had the feeling you've missed a great trading opportunity? I bet every trader has: As I write the dollar is making a very impressive recovery. If you look at the small screenshot above of the AUD/USD currency pair on a weeky-hourly chart, the dollar made more than 100 pips in the past six of seven hours. Note the fat green candlestick - we all know what economic event triggered that - the US interest rates.

AUD Falls a Little Further to US74.21¢ at 7am (AEDT) - A Delayed Reaction to Non-Farm Payrolls Data: The Aussie opened weaker today (Tuesday) as the US currency gained on most major currencies. At 7am (AEDT), the Aussie was trading at US74.21¢, lower than Monday's close of US74.72¢. Overnight, the AUD reached a low of US74.13¢ and a high of US74.75¢. There is a lack of economic indicators this week so the US dollar gained from a delayed reaction to the non-farm payrolls released last Friday. The RBA meets today for the first time in 2006 where the market sentiment is that the Australian interest rates will be kept constant at 5.5 per cent. The data releases expected today are: NAB quarterly business survey and D&B January business expectations survey.

The Aussie was slightly lower as a result of the US Dollar rallying from the release of positive non-farm payrolls data. At 7am this morning the Aussie was trading at US74.88¢ which is down from Friday's close of US75.32¢. Over the weekend it reached a low of US74.77¢ and a high of US75.34¢. Another figure that helped the US dollar along was the falling unemployment rate - which fell to a four and a half year low of 4.7 per cent and a revised 193,000 jobs were added to non-farm payrolls. This result lends itself to last weeks expectations for further US interest rate hikes in the future.

The Aussie dollar has added more than half a US cent since Tuesday amid speculation that the US Fed may not be quite done lifting rates. The dollar gained momentum throughout the night supported by commodities and gold. At 7am the Aussie was at US 75.14¢, Tuesday's close was at US75.12¢. The US Fed reserve raised interest rates to 4.5 per cent the highest since April 2001. The statement issued by the Fed was scrutinised by investers to interpret any futher information indicating any future interest rate direction.

This is MyShareTrading.com - Why in the world am I talking about Foreign Exchange? There is a good reason why I'm blogging about trading the foreign exchange currency markets mostly instead of the Australian Share Market. There is nothing special happening in that market at the moment - its going about its normal business.

Trading the forex markets can be daunting for beginners and novices. Be prepared for an interesting ride of profits and losses: I haven't been participating in the market for about 6 months. Other circumstances pulled me away from the markets that I love. So my skills are a bit scratchy - you can call me a forex novice for the time being. I tried playing the fluctations in the recent movements in AUD/USD in the forex markets and I made 8 percent of $500 so thats $40 in one day.

The United States Federal Reserve has delivered on market expectations by raising its benchmark interest rate by another quarter percentage point to 4.25 per cent and signalling more to come.

However, a change in wording in the statement - the removal of the description of policy being 'accommodative' in favour of 'some further measured policy firming is likely" - was taken as a signal that the end of the cycle is nigh. Bond yields fell slightly in response, the US dollar lost some modest ground and equity markets rallied.