Revised Market View on International Finance: USD/JPY, AUD/USD, EUR/USD, GBP/USD

International Finance – Revised Market View
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Currency Pair: USD/JPY
The initial view about USD/JPY was that yen will decrease against US dollar and the
same was observed during trading in the week 6 to 8. Yen was trading at the levels of 111.36
and 111.37 during trading in week 6 to 8. Further, as of August 01, 2018 yen has been found to
be trading at 111.70 which shows that it has devalued over the period (Daily Fx, 2018). It was
anticipated that the adverse economic conditions in Japan will affect the foreign exchange rates
adversely. The adverse economic conditions in Japan will continue in the near future and hence
it could be expected that yen will decrease in future.
Figure 1: USD/JPY Trend (Daily Fx, 2018)
The chart above shows that yen is decreasing against USD in the month of August and it
is further expected to decrease in September 2018. There are deflationary conditions in Japan
and to overcome these conditions Bank of Japan set a target to bring inflation rate to 2%.
However, the recent announcement from the Bank of Japan to keep the interest rates at -0.10%
shows that Japan is in no hurry to overcome deflationary conditions (CNBC, 2018). If the
deflationary conditions prevail, yen will continue to decrease in future.
Strategy in week-11: Since yen is decreasing, thus, currency pair USD/Yen should be sold to
make profits
Currency Pair: AUD/USD
In the initial view, it was expected that AUD will increase against USD considering
prevailing economic stability in Australia. The economy of USA on the other hand is relatively
little volatile in the recent times. The reserve bank of Australia has maintained the rate of
interest at 1.50%, the GDP is growing at 3.1% and inflation rate is around 2% (CNBC, 2018).
On the other hand, USA is expected to have inflation rate of around 2.45%. Further, higher
interest rates are also expected to keep the GDP growth rate lower in USA. So, based on
interest parity theory and purchase power parity theory, it could be expected that AUD will
increase against USD in future (Fxstreet, 2018). As of September 13, 2018, AUD/USD is trading
at 0.7193; it is expected to reach to 0.7282 within next 1 month and further to reach at 0.7310
within next one quarter (Fxstreet, 2018).
Strategy in week-11: Since AUD is expected to increase in future, thus, currency pair
AUD/USD should be bought to make profits.
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