Trading Context and Influences

Traders are keenly awaiting China’s RatingDog Services PMI report. Predictions suggest a drop from 52.6 in October to 52.0 in November. If the result surpasses expectations, it could help strengthen the AUD, given that China’s economy is vital to Australia’s trade. Several factors influence the AUD, including interest rates from the Reserve Bank of Australia, the health of the Chinese economy, and Iron Ore prices. Australia’s trade balance also plays a role; higher exports can boost the AUD, while a deficit may weaken it. This morning’s weak Australian GDP report signals a slowing domestic economy. In the third quarter, growth was only 0.4%, falling short of expectations. This reinforces the Reserve Bank of Australia’s cautious approach. Yesterday, the RBA kept its cash rate steady at 4.35%, suggesting that future rate hikes are less likely. Meanwhile, the sentiment towards the Japanese Yen is improving. Comments from Bank of Japan Governor Ueda have sparked speculation about a possible policy change. Overnight index swaps indicate a more than 60% chance that the central bank will end its negative interest rate policy at the meeting on December 19th. This potential for higher rates in Japan makes the Yen more appealing.

Potential Market Movements

The differing policies of central banks suggest that the AUD/JPY could decrease in the coming weeks. Traders might want to consider strategies to profit from this decline, like purchasing AUD/JPY put options. This strategy allows them to benefit from a possible drop while managing risk. Additionally, the external environment is not providing much support for the Australian dollar. Recently, iron ore futures fell below $130 per tonne, declining from November highs due to worries about Chinese steel production. This follows China’s official Manufacturing PMI, which unexpectedly dropped to 49.8 last week, showing that the recovery in our biggest trading partner is fragile. We will keep an eye on two key events for further direction. Today’s China Services PMI data will give us insight into the health of Australia’s major customer. Then, attention will shift to the Bank of Japan’s policy meeting on December 19th, which could trigger significant movement in the AUD/JPY pair. Create your live VT Markets account and start trading now.

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