Use Details To Filter Out The Noise In Trade Ideas
There can be a lot of noise and bias in the market when it comes to trades. This video talks about how to filter through the noise and understand what is really happening, and why.
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We have a quick question from Tong, who asks why we currently like a long or upside bias on the AUD versus the Dollar with China inspecting more Australian imported goods and implementing tariffs on them?
This is a great question Tong, and I think it allows us to talk a little bit about being able to filter out some of the noise we often get in the market. So, let’s use the Australia/China trade relations as an example of this.
So, like you mentioned, we’ve recently seen an escalation in the tensions between China and Australia in their trade relationship with China banning or adding tariffs on certain product from Australia which includes things like barley, copper ore and timber.
Given what we remember from the US/China trade war, it certainty is an ominous move from China and one that one would expect, at face value at least, to really impact the AUD negatively. So whenever we build a premise for a particular bias, we always want to try and focus on the big and main drivers and try to filter out any noise that might cloud our judgement, and for now, the China/Australia tensions is a bit of noise on the AUD, and let me explain why, it is something that can affect our bias on the AUD, but not yet and let me explain why.
If we take a look at the OEC website, we can see the biggest export products for Australia on the left and on the right we have their trade partners. So, if we select China, we can see that Iron ore and coal is the biggest exports and most important exports that Australia sends to China. If we take a look at things like Copper Ore, or rough wood or barley, we can see these are really small parts of Australia’s exports to China. So, the way that I’m seeing these bans and tariffs for now, is simply China’s way of trying to bully Australia after their spat over the virus.
So, the size of the exports that are targeted for me shows that things haven’t reached a tipping point yet, but what will change that and change my view on the AUD is if we get confirmation that China is banning massive amounts of incoming coal and iron ore, or if they place massive tariffs on Coal or Iron Ore, that will change things in my perspective.
So, if I compare that to the reasons why we like upside in the AUD versus the Dollar which is reflation expectations in 2021, broad-based commodity strength due to broad-based Doller weakness, expectations for cyclical currencies to appreciate as the global economy recovers, for me the reasons to be long outweighs the current bans and tariffs, but of course it is a key risk factor that we need to watch.
So, I hope that gives you a bit of insight Tong into how we try to use the details to filter out some of the noise in our trade ideas and biases, any other questions please don’t hesitate to let us know.
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If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a quick question from Tong, who asks why we currently like a long or upside bias on the AUD versus the Dollar with China inspecting more Australian imported goods and implementing tariffs on them?
This is a great question Tong, and I think it allows us to talk a little bit about being able to filter out some of the noise we often get in the market. So, let’s use the Australia/China trade relations as an example of this.
So, like you mentioned, we’ve recently seen an escalation in the tensions between China and Australia in their trade relationship with China banning or adding tariffs on certain product from Australia which includes things like barley, copper ore and timber.
Given what we remember from the US/China trade war, it certainty is an ominous move from China and one that one would expect, at face value at least, to really impact the AUD negatively. So whenever we build a premise for a particular bias, we always want to try and focus on the big and main drivers and try to filter out any noise that might cloud our judgement, and for now, the China/Australia tensions is a bit of noise on the AUD, and let me explain why, it is something that can affect our bias on the AUD, but not yet and let me explain why.
If we take a look at the OEC website, we can see the biggest export products for Australia on the left and on the right we have their trade partners. So, if we select China, we can see that Iron ore and coal is the biggest exports and most important exports that Australia sends to China. If we take a look at things like Copper Ore, or rough wood or barley, we can see these are really small parts of Australia’s exports to China. So, the way that I’m seeing these bans and tariffs for now, is simply China’s way of trying to bully Australia after their spat over the virus.
So, the size of the exports that are targeted for me shows that things haven’t reached a tipping point yet, but what will change that and change my view on the AUD is if we get confirmation that China is banning massive amounts of incoming coal and iron ore, or if they place massive tariffs on Coal or Iron Ore, that will change things in my perspective.
So, if I compare that to the reasons why we like upside in the AUD versus the Dollar which is reflation expectations in 2021, broad-based commodity strength due to broad-based Doller weakness, expectations for cyclical currencies to appreciate as the global economy recovers, for me the reasons to be long outweighs the current bans and tariffs, but of course it is a key risk factor that we need to watch.
So, I hope that gives you a bit of insight Tong into how we try to use the details to filter out some of the noise in our trade ideas and biases, any other questions please don’t hesitate to let us know.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
