One of the best performing currencies of 2009 has been Australian Dollar. Country’s financial authorities were first among world’s major economies to declare end of recession and institute interest rate increase policy. Reserve Bank of Australiaraised it benchmark cash rate by 75 basis points, to 3.75%. This happened during relatively short time span of 3 months. Market observers have been expecting additional monetary tightening policy during 2010, maybe as much as another 1.25% in rate increases. This has certainly been one of the major factors behind the strength of AUD.

Today these expectations were put to a test, by none other than RBA. Deputy governor, Ric Battellino, said the overall monetary position was back in the “normal range”. He pointed out that the spread between commercial lenders’ rates and the official rate had increased and was now wider than at the start of the crisis. In his words this reduces the need for the official policy rate to rise. As it is typical of central bankers, no details of any kind were disclosed, but this statement reveals what it is they pay attention to while formulating decisions. This lowers the chances of most immediate rate hike during next meeting, but probably doesn’t change the fact that AUD will be the highest interest bearing of the major currencies. Today’s Australian Dollar drop is blamed on these comments, even though the slide started yesterday, well before Mr. Battelino’s remarks. Go figure.

In reality it doesn’t matter who says what or why is something or other moving. What is important is the fact AUD has indeed lost ground today. It is even more important to me, because that’s exactly what I have been waiting for. Price action trade using EUR-AUD was discussed yesterday. Weakness in Aussie was need for the trade to become live. Here’s what happened.

Price moved up rather significantly, going through my buy order at 1.6158. Trade is active now. Initial stop is at 1.5958, just under most recent low. It will be moved higher as soon as another minor low is established. Intermediate term chart was selected for the trade, it could easily take few day weeks for trade to be over with. Frankly, the longer the better, because it would mean transaction is behaving as expected. All updates will be can be found under the “Price action trades” category.

Most of my trading today was focused on British Pound. Over last few days I accumulated quite a few GBP orders all of them bullish, like this buy in GBP-NZD. Entry for this trade was at 2.2520, with an objective of about 2.2780-2.2800. Price moved nicely my way, getting well above 2.2700 and I decided to get out at 2.2720, for 200 pips. Couple of reasons. It is late in trading day for me and I would hate to see this turn around, especially with FED announcement on the horizon. Besides, I had so many Pound trades that some gains had to be taken.

Another Pound pair discussed here is EUR-GBP. This trade is still under way and I’ll go over it in next post, but almost identical, only reversed positions was taken in GBP-CHF. Had to do it in another account, because concentration of Pound trades was too big for one. Here my entry point was at 1.6800, with a target of 1.7000. Trade produced 200 pips. BTW, EUR-GBP is under 0.8900 and I’m thinking about closing it too, before FED meeting.

This post is becoming exhaustively long, so more abbreviations now. NZD-CHF looks ready for a correction here. Last week I had a good long trade in this cross. Now I want to try it on the short side.  Entry is intended at 0.7427, with modest objective of 70-75 pips. Now I can relax, wait for FED decision and watch markets respond. While nobody expects rate change today, language of the statement will be under magnifying glass. Who knows what markets will do? BTW, just closed EUR-GBP trade, at 0.8893. Details in next update.

Mike K.