Understanding and navigating the seasonality of the Australian dollar (AUD) during their second quarter (October through December) can provide valuable insights for individuals and businesses involved in foreign exchange trading, import-export operations, or international investments. The end of Australia's fiscal second quarter aligns with many countries' end of the calendar year (December), increasing AUD price volatility as different governments and businesses buy or sell AUDs to close their accounting year.
Tourism can significantly impact the AUD from October to December, corresponding to Australia's spring and early summer seasons. Several factors influence the impact of tourism on the AUD during this period:
Peak Tourism Season: October to December is a popular time for tourists to visit Australia due to favorable weather conditions and various cultural events and festivals. This influx of international tourists can increase demand for the AUD, as tourists exchange their home currencies for AUD to cover expenses during their trips.
Foreign Exchange Earnings: Tourism contributes significantly to Australia's foreign exchange earnings during this period. International tourists spend money on accommodations, dining, shopping, tours, and other services, generating AUD revenue.
Economic Growth: A thriving tourism industry contributes to overall economic growth in Australia. Increased tourist spending supports businesses in various sectors, including hospitality, retail, transportation, and entertainment. This economic activity can boost consumer confidence and investor sentiment, potentially leading to a stronger AUD.
Government Policies: Government policies and initiatives related to tourism can influence the number of tourists visiting Australia. Programs that promote tourism, changes in visa regulations, and marketing campaigns can impact tourism numbers and, subsequently, the demand for the AUD.
Interest Rates: The Reserve Bank of Australia (RBA) may consider the health of the tourism sector when making monetary policy decisions. A robust tourism industry can indicate a healthy economy, potentially affecting the RBA's stance on interest rates. Higher interest rates can attract foreign investment and increase demand for the AUD.
Global Economic Conditions: The willingness of people to travel and spend on tourism is influenced by global economic conditions. If key tourist markets are experiencing economic growth and increased consumer confidence during this period, it can lead to more international travel and higher tourism-related expenditures, benefiting the AUD.
However, it's essential to consider that while tourism can positively impact the AUD from October to December, its influence is just one factor affecting its exchange rate. Other factors, such as commodity prices, global economic events, geopolitical developments, and changes in monetary policy, can also significantly influence the AUD's value.
Events that could continue pushing prices into their October lows
The AUD has declined past .6450, as strength in the US Dollar has caused the AUD to surrender recent gains, resuming its multi-year downtrend. While the RBA held rates steady at their recent meeting, the US central bank followed suit but culminated in a hawkish comment about needing another US rate hike this year, giving strength to the US Dollar. While the RBA said it needed more time to assess the impact of previous rate hikes on the economy, a dovish tone, the US central bank made it clear more rate hikes are needed.
The RBA is still concerned with the uncertainties of China's lackluster economic recovery as China is a significant trading partner with Australia.
The weekly chart illustrates how the AUD made its annual seasonal low last October, and this year appears to be following the same pattern. The previous year's AUD second quarter had a significant rally as several of the above events allowed for AUD appreciation.
The lows made last year, from .6200 to .6300, could become an area of interest for this year's seasonal low as the AUD approaches this year's seasonal window.
Will the planes and ships coming to Australia be filled with significant amounts of freshly purchased AUDs to spend on vacations?
Source: Moore Research Center, Inc. (MRCI)
In a recent article for Barchart, "Unraveling the Seasonal Pattern Affecting the Australian Dollar During Their Fiscal First Quarter," I wrote, "The technicals remain bearish for the AUD as the daily chart illustrates recent weakness during August. The AUD peaked in January 2023 and spent several months in a sideways pattern. As the fiscal first quarter began in July, the market exhibited its seasonal weakness that usually goes into the end of September, the end of the fiscal first quarter."
MRCI, through extensive research, has revealed a seasonal buy pattern in the AUD. They have identified the AUD closing price on October 21 has been higher than the close on approximately October 06 87% of the time. That is 13 winning years out of 15; four never had a daily closing drawdown.
Markets are forward-looking, and the seasonal pattern illustrates how the AUD anticipates the influx of new AUD demand as the tourism season begins. Traders can anticipate this trade being open for approximately 16 calendar days. As a reminder, the window of time MRCI mentions is not precise. The window could begin and end several days before or after the optimal dates listed.
Traders should be aware that the AUD is in a downtrend and may still be in a downtrend when the seasonal window opens. Each trader approaches the market with their style and risk tolerance. I prefer to see a trend change or currently in favor of the seasonal window before committing capital.
It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must also consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.
In conclusion, understanding the seasonal trading patterns in October can provide valuable insights for navigating the AUD effectively. By employing strategies such as monitoring economic indicators, utilizing technical analysis tools, implementing risk management techniques, and diversifying your trading portfolio, you can position yourself for potential success in the forex market during October. Remember to stay informed, adapt to changing market conditions, and prioritize risk management for a well-rounded trading approach.
To participate in this setup, traders can utilize the spot forex market AUDUSD. Futures traders can use the standard-size (6A) contract (Barchart symbol A6) or the micro-size (M6A) contract (Barchart MG.)
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On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.