AUD Fails to Improve on USA Injection Plan News
By SmallStocks on Oct 15, 2008 in Currency
The AUDÂ (AUDUSD)Â is down again, just under the 0.70 USD market at time of writing and failed to show any signs of life on the back of news that the US Government was going to inject $250 Billion into its core banking system and that the Australian Government is injecting a further $10.4 Billion into the economy.
What’s more, the USD didn’t improvement either. It ended the day lower versus most major currencies and hardly moved at all during the trading session. Part of the reason the USD didn’t move more, was that the US Treasury announced it will proceed with its “voluntary capital purchase program” as part of the Trouble Asset Relief Program (TARP) – more commonly known as the “bailout”. What’s more it will do this at “attractive rates for US Tax Payers” – whatever that means. The main restrictions under TARP include a restrictions on executive pay and gold parachutes if the firms under-perform. The hope is that by injection so much capital, firms will restablise and the investment by the Government will eventually return a profit to taxpayers.Â
So why didn’t this potentially “good” news lead to an increase in the USD ? Well, the USD – like the Japanese Yen (AUDJPY) - tends to only improve during times of risk aversion and fall when traders want to take on more risk. So, this was part of the reason why the USD didn’t improve and consequently part of the reason why the AUD is weaker.
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