5.05.2009

Australia Holds Interest Rates Unchanged at 3% as Expected (Euro Open)

The Reserve Bank of Australia kept interest rates unchanged at 3%, as expected. Notably, RBA chief Glenn Stevens introduced new language into the statement accompanying the announcement, tempering a generally upbeat outlook by leaving the door open to cut rates again later this year.

Key Overnight Developments

• Prices for New Zealand’s Commodity Exports Rose for Second Month in April
• RBA Leaves Rates Unchanged at 3% But Leaves Room for Future Reductions

Critical Levels



The Euro traded lower overnight, correcting to test as low 1.3364 after a steep rally in New York hours. The British Pound followed a similar dynamic, reversing back to the 1.50 level after trying as high as 1.5052 early in the session.

Asia Session Highlights



The ANZ Commodity Price Index showed the cost of New Zealand’s top exports on global markets rose for the second consecutive month in April, adding 2.5% after a 1.0% in the previous month. Measured in the local currency, however, prices fell to the lowest level in nearly 2 years. This suggests the New Zealand’s Dollar’s recent gains may steer overseas buyers away from the smaller antipodean nation’s products, reversing some of the recent improvements in the Trade Balance.

The Reserve Bank of Australia left benchmark interest rates at 3.00%, as expected. RBA Governor Glenn Stevens said that noted “signs of stabilization” in the global growth, singling positive developments in the Chinese economy in particular, and added that financial markets are “on a path of gradual improvement.” Stevens expects inflation to continue to abate as the Australian economic performance likely to decline further over the rest of the year. That said, the central bank chief again asserted that “monetary policy has been eased significantly [and this] together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead.” Perhaps most significantly, Stevens included language absent from the previous announcement saying that the bank will monitor global and financial conditions in assessing the need for “further reductions”. Westpac Banking Corp’s chief economist Bill Evans has speculated that the decision to delay lowering rates now is likely tactical saying, “We expect the bank will see the need to have ample capacity to be cutting rates through the second half of 2009…The economic case for cutting rates is undeniable.” The Australian Dollar advanced 30 pips in the 20 minutes immediately following the announcement, reclaiming the 0.74 level.

Euro Session: What to Expect



The Euro Zone Producer Price Index is expected to have declined for the eighth consecutive month in March, showing wholesale inflation fell at an annual pace of -2.9%, the most in over 22 years. The release implies forthcoming downward pressure on consumer prices (the headline inflation gauge) as lower production costs are passed on via cheaper finished goods. Indeed, a survey of economists conducted by Bloomberg suggests CPI growth will come to a standstill by the end of June. Overnight index swaps suggest the market is pricing in an 88% probability that the European Central Bank will cut interest rates to a record-low 1% when policy is announced later this week.

In Switzerland, the SECO Consumer Climate indicator is expected to reverse lower in April to print at -25, down from -23 registered in January when sentiment rebounded as tumbling inflation boosted Swiss consumers’ purchasing power. The unemployment rate has risen to a 3-year high at 3.4% and is expected to surpass 4% by the end of the year, weighing on disposable incomes and suggesting consumer sentiment will continue to suffer in the months to come.

Written by Ilya Spivak, Currency Analyst
Article Source - Australia Holds Interest Rates Unchanged at 3% as Expected (Euro Open)
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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

Currencies
List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!