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During the Asian session today, Japanese sources reported that the government will lower its economic growth forecast for the current fiscal year from 1.5% to 0.5%, reflecting the impact of the March earthquake on factory production. This figure will roughly align with the Bank of Japan's July estimate of a 0.4% expansion for the current fiscal year. Sources said that the government may predict a rebound in growth to over 2.5% for the next fiscal year, but this forecast could be reduced depending on the government’s assessment of the effects of power shortages due to the shutdown of nuclear plants and the impact of expected tax increases to fund reconstruction after the severe earthquake and tsunami that devastated large areas of the northeastern coast.
This means that when major countries in Europe and America face significant economic difficulties, it will be more challenging for the Bank of Japan to convince other countries to allow intervention in the yen's movement. Since the Federal Reserve has committed to maintaining loose monetary policy until 2013, the dollar is increasingly becoming a funding currency. However, in a time when the U.S. itself might face credit default, interest rate differentials are unlikely to have much effect. Moreover, traditional high-interest currencies have already seen substantial appreciation.
**AUD/USD:**
The Australian dollar fell sharply on Wednesday following declines in the euro and stock markets. On the daily chart, after being resisted at the 1.0389 level, AUD turned down again to test the support of the 250-day moving average at 1.0164. Currently, the decline in the Australian dollar has little to do with Australia's fundamentals; it is largely driven by global risk aversion sentiment. For now, AUD is still oscillating between 1.00 and 1.03. We suggest traders adopt a strategy of selling high and buying low. If the exchange rate encounters resistance again around 1.026-1.03, consider going short. Conversely, if it finds support near 1.00, consider going long. Although the rumor about France's credit rating being fabricated was debunked, European stocks may continue to be sold off during the session, indicating some force is persistently bearish. Therefore, caution is advised.
**Gold:**
Yesterday, gold prices surged significantly after rumors spread that France's credit rating would be downgraded, hitting a new all-time high. All the factors we analyzed regarding gold remain valid. In general, there's not much more to say—go long on gold! The ongoing weakness of the U.S. dollar and financial market turmoil will continue to support gold's march toward $2000. This year's autumn gold consumption peak season could very likely touch this price level. Short-term technical indicators show extreme overbought conditions, so if news becomes less volatile, gold prices may pull back. However, decisively going long on dips remains the best choice.
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