The Fed and RBA managed the AUDUSD target zone for 10 % width of medium term exchange rate target zone in compliance to Louvre Accord but wider and narrower subject to the actual average traded weighted rate of AUDUSD to JPY, CHF and EUR at upper band/ceiling and at lower band/ceiling by their price stabilization/compression rate. The pair moved from their disequilibrium to equilibrium in compliance to equilibrium exchange rate.
At lower band/ceiling, RBA undertook sterilization to slower the weakening of AUD against USD as permitted by the central banks' consensus. The consensus allow for RBA to sterilize up to 50 % of the medium term exchange rate target zone to central band/central parity. In the past I estimated that the sterilization will be up to 0.7400 but ended at 0.7390. This sterilization was opportunity for CHF and JPY carry traders for carry trading on AUD and AUD-denominated debt securities and to drive the AUDJPY and AUDCHF to upward wider than 5 % or wider than AUDUSD . However, both Fed and RBA maintained the AUDUSD to be sterilized up to 5 % or estimated 50 % of the medium term target zone as permitted by the consensus, ended at 0.7390. Previously, I consistently stated that AUDUSD was sterlized to 0.7400 but ended at 0.7390.
The impact of the CHF and JPY carry trading activity however to put the AUDUSD to be prolonged at central band/central parity for the benefit of RBA, also called the honeymoon affect. However, should the JPY and CHF carry trading activity to be dismissed then the AUDUSD will be dropped sharply to downward to visit her new lower band/ceiling of medium term exchange rate target zone. The pair however may pauses at current actual lower band/ceiling before pressured back for another 5 % from the current actual lower band/ceiling. At what exchange rate the new lower band/ceiling is measured by the average weighted rate on the AUDUSD to JPY, CHF and EUR. However, the combination of price and percentage charting by this TradingViews could be useful to gauge the next 5 % price drop .
This methodology is based on the guidelines and procedures for the assessment and measurement of target zone and sterilization by the Fed and global central banks in compliance to Plaza, Louvre and EMS agreements. It was also publicated by CEPR (Center for Economic Policy Research) and NBER (National Bureau of Economic Research).
At lower band/ceiling, RBA undertook sterilization to slower the weakening of AUD against USD as permitted by the central banks' consensus. The consensus allow for RBA to sterilize up to 50 % of the medium term exchange rate target zone to central band/central parity. In the past I estimated that the sterilization will be up to 0.7400 but ended at 0.7390. This sterilization was opportunity for CHF and JPY carry traders for carry trading on AUD and AUD-denominated debt securities and to drive the AUDJPY and AUDCHF to upward wider than 5 % or wider than AUDUSD . However, both Fed and RBA maintained the AUDUSD to be sterilized up to 5 % or estimated 50 % of the medium term target zone as permitted by the consensus, ended at 0.7390. Previously, I consistently stated that AUDUSD was sterlized to 0.7400 but ended at 0.7390.
The impact of the CHF and JPY carry trading activity however to put the AUDUSD to be prolonged at central band/central parity for the benefit of RBA, also called the honeymoon affect. However, should the JPY and CHF carry trading activity to be dismissed then the AUDUSD will be dropped sharply to downward to visit her new lower band/ceiling of medium term exchange rate target zone. The pair however may pauses at current actual lower band/ceiling before pressured back for another 5 % from the current actual lower band/ceiling. At what exchange rate the new lower band/ceiling is measured by the average weighted rate on the AUDUSD to JPY, CHF and EUR. However, the combination of price and percentage charting by this TradingViews could be useful to gauge the next 5 % price drop .
This methodology is based on the guidelines and procedures for the assessment and measurement of target zone and sterilization by the Fed and global central banks in compliance to Plaza, Louvre and EMS agreements. It was also publicated by CEPR (Center for Economic Policy Research) and NBER (National Bureau of Economic Research).
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