JLS: AUDUSD Target Zone & Impact of Carry Trading Activity
The estimated target zone of AUDUSD is 0.7400-0.6900-0.6400 after the RBA sterilized the price of AUDUSD to slower the weakening of AUD by USD as permitted by the applicable policies, regulations and practices. And then, the AUDUSD bearish down to her central band/central parity and on her way to her lower band/ceiling.
However, at central band/central parity, the CHF, JPY and EUR carry traders to carry the AUD and AUD-denominated debt securities and supportive to hold the AUDUSD price and not to break the central band/central parity but turned back to upward for an estimated 2.25 % as permitted by the applicable consensus. But, the AUDUSD becomes stabilized above the central band/central parity.
The CHF, JPY and EUR carry traders re-carrying the AUD and AUD-denominated debt securities and this may cause the AUDUSD price to rally to upward by revisiting her upper band/ceiling 0.7400 or lower. By policies, regulations and practices, the FRB of New York will not allow the AUDUSD price to break the level of 0.7400 for maintaining the AUDUSD price stability as per FRB of New York's Target Zone Management: Alignment, Realignment and Continuously Realignment and their Sustainability.
Should the CHF, JPY and EUR complete their re-carry trading activity then AUDUSD may experience price deep drop/crushes by breaking her central band/central parity down to 0.6400 and actually interior her target zone 0.7400-0.6400 but since the price falls to occur in very short time then it is called price crushes. This could be major risk that if not anticipated and managed may result the collapse of global traders. Many traders will billion dollar assets under management to be disappeared from the market by this kind of risk, such as Samarah Fund with $ 36 billion gone by the wind.
However, at central band/central parity, the CHF, JPY and EUR carry traders to carry the AUD and AUD-denominated debt securities and supportive to hold the AUDUSD price and not to break the central band/central parity but turned back to upward for an estimated 2.25 % as permitted by the applicable consensus. But, the AUDUSD becomes stabilized above the central band/central parity.
The CHF, JPY and EUR carry traders re-carrying the AUD and AUD-denominated debt securities and this may cause the AUDUSD price to rally to upward by revisiting her upper band/ceiling 0.7400 or lower. By policies, regulations and practices, the FRB of New York will not allow the AUDUSD price to break the level of 0.7400 for maintaining the AUDUSD price stability as per FRB of New York's Target Zone Management: Alignment, Realignment and Continuously Realignment and their Sustainability.
Should the CHF, JPY and EUR complete their re-carry trading activity then AUDUSD may experience price deep drop/crushes by breaking her central band/central parity down to 0.6400 and actually interior her target zone 0.7400-0.6400 but since the price falls to occur in very short time then it is called price crushes. This could be major risk that if not anticipated and managed may result the collapse of global traders. Many traders will billion dollar assets under management to be disappeared from the market by this kind of risk, such as Samarah Fund with $ 36 billion gone by the wind.