Financial Market Report: AUD/USD Analysis and Trading Strategy

This financial market report analyzes the objectives of a bank seeking to expand its customer base and territories, focusing on the foreign exchange market. The report provides an overview of the AUD/USD currency pair, including market views, trading strategies, and factors influencing its value. It delves into terms of trade, marketing strategies, and the use of one-pair currencies. The report also discusses value investment, financial derivatives, and their role in managing risks. The conclusion emphasizes the importance of exchange rates and market trend predictions for long-term financial success, particularly in the Australian banking sector. The assignment includes an introduction, market view, and analysis of various economic factors influencing exchange rates, along with a foreign exchange transaction log.

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FINANCIAL MARKET
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Table of Contents

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FINANCIAL MARKET..................................................................................................................3
Introduction......................................................................................................................................3
market view.....................................................................................................................................3
Terms of Trade................................................................................................................................5
Terms of Trade and Marketing Strategy......................................................................................5
One pair currency.........................................................................................................................5
Trading Strategy..............................................................................................................................6
Value Investment.........................................................................................................................6
Financial derivatives....................................................................................................................6
Conclusion.......................................................................................................................................6
Reference.........................................................................................................................................7
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Introduction
The institution is a bank with an expectation of expanding its territories and serving a large
customer base. With the current dynamics in the world, staying ahead of competition it is very
important for the bank in order to survive. The primary objective of the bank is to provide
banking services to our clients by accepting deposits from customers then utilize the deposits to
provide loans for businesses and individuals (Cranston & Sante, 2018). The secondary objective
of the bank is to invest in assets that will ensure the company expands and increases its customer
base. Marketing will also be another aspect that will ensure that our expansion strategy works
and the expansion is successful (Ma, 2018). Foreign exchange market is one of the main players
in the banking sector making it a crucial part in the market view.
Our primary objective will be met through advertising to make known our services and our
existence in the market. On the other hand, our secondary objective will be met through the
provision of excellent services in combination with community service responsibility. The main
factors to be considered by the group in order to achieve our objective is learning all the services
offered by the existing banking institutions in order to capitalize on the shortcomings of the other
banks.
Market view
An overview of the AUD/USD pair informs the trader how many US dollars are needed for the
purchase of one Australian dollar. The AUD is one of the popular currencies among currency
traders due to its high liquidity. The reserve bank of Australia sets the interest rates. A three-
month analysis of the AUD/USD shows that it is trading out of range. The AUD is struggling
back to get back to the range area (Decker & McCracken, 2018). If the market does not succeed
to breakout the previous level then the AUD/USD is expected to fall. Currently the Australian

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dollar is facing pressure due to the release of another weak inflation report. According to the
daily swing chart the main trend is down. The direction of the AUD/USD based on the trading
price of 0.7035 is most likely to be determined by the reaction of the traders to the 50% level at
0.7030. Another possibility is the return of buyers due to holding 0.7030. The AUD/USD will
likely recover the previous main bottoms at 0.7041 if the buying is strong enough.
Australia has a great exposure in the Asian economy being a big exporter to China, the
Australian dollar offers diversification benefits in trading consisting of the major world
currencies. Gold is one of the safest trade commodities, this correlation is clear from the
shanghai stock exchange (Cranston & Sante, 2018). The price of gold directly affects the rise
and fall of the AUD/USD pair. The AUD/USD can be adversely affected by the following
factors;
 Reserve Bank of Australia which is responsible for issuing statements and deciding on
the country’s interest rates
 The Australian Government and its finance department that is tasked with policy
implantation directly affecting the economy
 The US Government new laws, regulations, events and the fiscal policy that directly
affect the increase and decrease of the US dollar and currencies trading against it.
 The Federal Reserve of the United States whose primary role is to control the monetary
policy through setting reserve requirements, managing the interest rates and acting as a
lender to the banks in times of crisis.
 Gross Domestic Product is the market value of goods and services produced in a country.
It is an indicator of how a countries economy is growing or decreasing by a measure of
the market activities, (Dikau, 2019). A high reading positively impacts AUD.

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 Inflation reflects the changes in the purchasing trends, inflation key players are
production price index and core price index.
 The current trade balance is the relationship between imports and exports of total goods
and services. A negative value is an indication of s trade deficit while a positive value
indicates trade surplus (Dikau, 2019). Positive growth in the trade balance is experienced
with the steady demand for exchange in AUD exports which in turn creates a positive
impact for the AUD.
Terms of Trade
Our market view will be based on the terms of trade within a country. According to the view,
the relationship between the export and the import price is directly affected by the terms of trade
in that particular country. The terms of trade in a country are likely to appreciate when the prices
of exports are higher than the import prices. Due to the high export prices, such a country will
experience a rise in the revenue collected which translates to direct investments in the country
(Debelle, 2018). The rise in direct investments will raise the market price of the country’s
currency. This is always the case as the economy adjusts according to the currency demand and
supply as well as the demand for goods and services.
Terms of Trade and Marketing Strategy
With our objective of expanding into new areas and employing a marketing strategy, ensuring
that the demand for our services is on the rise and providing quality services will be important
(Decker & McCracken, 2018). Meeting our customer’s needs will be very paramount and
knowing their needs will make our service deliver excellently. With marketing, the expansion
will be most likely and which will result in great improvement in terms of trade.
One pair currency

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One pair currency is the comparison of one currency’s value in relation to another currency. In
this case, the value of one currency is expressed in relation to another. There are many one pair
currency with the precise number being impossible to predict since each year exotic pairs are
generated and dropped (Debelle, 2018). The most common one pair currency is EURUSD,
GBPUSD, USDJPY, AUDUSD, USDCAD, USDCHF, and NZDUSD. This currency is traded in
pairs in the foreign exchange market with the aid of stoke brokers. Different currencies are used
in different regions and different market although some currencies are used globally including
the USD. The AUS has been depreciating in value significantly as compared to the USD. The
depreciation has been consistent over time and likely to remain low (Decker & McCracken,
2018). The price speculators, in this case, are selling the AUD leading to a drop in the value due
to the increased supply. The consistent drop can be linked to the current drop in the exports from
Australia which has reduced the demand for the Australian Dollar.
Trading Strategy
Trading strategy is an important aspect in the exchange market since it is the main determinant of
your ability to gain from trading in the foreign exchange market (Zhu, Xiao, Huang, Tang, &
Deng, 2018). It can be defined as the selling and buying in the market guided by set rules for
making trading decisions. The primary objective of the banking sector is to provide investment
strategies to its consumers this in turn directly impacts the economy. A strong economy is a
direct reflection of a stable banking sector.
Value Investment
Most banks employ the value investment trading strategy. Value investment involves looking for
stocks that trade for less than their book value (Debelle, 2018). Value investment mainly focuses

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on long-term objectives rather than the short term. Banks can effectively use this strategy to buy
stocks aggressively when everyone else is selling especially during poor economic conditions or
bad news and sell when other investors are buying.
Financial derivatives
The most common financial derivatives are options, forwards and futures, they are used by banks
to manage risks. Banks make profits through the difference between deposits and the interest on
loans (Cranston & Sante, 2018). In the derivative market banks can act as intermediaries by
matching buyers and sellers this will ears them a substantial amount of commission fees, they
can also choose to be the end-use of derivatives through direct participation in the market as
buyers and sellers. Changes in interest rates may make a financial institution vulnerable to losses
they, therefore, use derivatives to hedge.
Conclusion
The exchange rate is a major player in the financial sector as it’s the main determinant of the
flow of capital in and out of a country. With the short-term strategy of reaching out to a large
customer base being able to strategize rightly in the stock market will make it successful. In the
long run, being able to predict the market trends will enable the bank to match assets and
liabilities better and therefore avoid losses. In Australia banks play a very critical role in the
financial system of the country by ensuring liquidity through access to cash on deposit, loan
creation and debt revolving by use of credit cards. When money is accessible consumers easily
make purchases of goods and services, businesses grow and jobs are created. A healthy economy
requires liquidity combined with efficient money transfer.

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Reference
Cranston, R. and Van Sante, T., 2018. Principles of banking law. Oxford University Press.
Debelle, G., 2018. Twenty-five Years of Inflation Targeting in Australia. Central Bank
Frameworks: Evolution or Revolution? p.53.
Decker, F. and McCracken, S., 2018. Central banking in Australia and New Zealand: historical
foundations and modern legislative frameworks. Research Handbook on Central Banking, p.245.
Dickau, S. and Volz, U., 2019. Central Bank Mandates, Sustainability Objectives and the
Promotion of Green Finance (No. 222).
Ma, M., 2018. Forex Trading System Development.
Zhu, J., Wu, X., Xiao, J., Huang, C., Tang, Y. and Deng, K., 2018. Improved expert selection
model for forex trading. Frontiers of Computer Science, 12(3), pp.518-527.