Forex Daily Review: AUD/USD Bears are Ready to Chew the Bulls’ Stops

25 Sep 2012• Matti Williamson, FX and commodities analyst      S&P Downgrades Growth Forecasts

The slowdown in China was finally noticed by Standard & Poor's (S&P) credit rating agency:

"We have lowered our base case forecasts of 2012 real GDP growth by about half a percentage point for China to 7.5%; Japan to 2.0%; Korea to 2.5%; Singapore to 2.1%; and Taiwan to 1.9%,"

Australia were also penalized, suffering from a 0.2% downgrade from 3.2% expected growth to 3.0%. There will be great pressure on the Reserve Bank of Australia (RBA) monetary policy meeting on 2 October. Although there are no expectations for a rate cut please be aware there is a great risk for the RBA to act and cut its cash rate by 25bps (0.25%) or suggest it may act in the next monetary policy meeting if economic data deteriorates. Fall in commodity prices are beginning to chip the firm Australian economy and I am certain this will not go unnoticed by key market figures. AUD/USD is currently trading at 1.0422 and will be the key focus for the upcoming week.

EUR/USD is Threatened by the ECJ and Finland

Despite recent gains in EUR/USD negative fundamentals are reluctant to let go. According to recent reports the European Central Bank (ECB) and the Bundesbank are reaffirming the legality of the ECB new bond-buying program. There is a great concern lawsuits may be filed to the European Court of Justice (ECJ) to block the program, all legal teams are on the case to ensure the ECJ will dismiss any 'bearish' lawsuits. Forex traders must also be aware of the upcoming 2012 elections in Finland, due in October. The 'True Finns' party, led by Timo Soiniis, are likely to star in the major headlines for their strong objection for financial bailouts to debt-ridden countries such as Spain, Greece and perhaps even Italy. Expect gains in EUR/USD to be short-lived until Finland shows us the light.

USD/JPY and the Cabinet Reshuffling

For USD/JPY fans there is a faint chance Prime Minister Noda will reshuffle its cabinet on 1 October, including a possible reassignment of Finance Minister Azumi. Japanese exporters may feel more comfortable selling Dollar-yen as the 'big brother' may be busy clearing his desk. Nevertheless I am certain the MOF will be monitoring the FX rates in USD/JPY and the new Finance Minister (if Azumi is reassigned) is likely to adopt a more aggressive approach as the strong Japanese Yen (JPY) is continuing to massacre Japanese firms in the stock market.

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