The Fed Is In A Tightening Mode, And The Central Bank Is Keeping Interest Rates Unchanged Or Cutting Interest Rates.

Foreign media said the Fed's interest rate hike last week meant that a long-term relationship lasting 16 years is coming to an end.

This relationship is the spread between Australia and the United States, and the interest rate in Australia has been higher than the US interest rate since 2001.

The Fed raised its short-term interest rate by 0.25 percentage points on the 15 day and estimated that there will be two same rate hikes this year. If the two rate increases are implemented, then the upper US interest rate target will reach 1.5% by the end of the year, that is, the current level of Australia's benchmark interest rate.

The foreign exchange market is facing such a trend: the interest rate gap between the US and the rest of the world is narrowing, and the interest rate gap between the US and Australia is about to disappear.

Although the Federal Reserve is now in a tight mode, central banks, whose interest rates are higher than those in the United States (such as Australia, India and Brazil), are keeping interest rates unchanged or cutting interest rates.

Foreign exchange market participants often seek to profit from spread trading (i.e., arbitrage trading) through investing in stocks, bonds and currencies with higher interest rates.

Today, rising interest rates in the United States may trigger the reversal of such capital flows, or will cause exchange rate turbulence in countries concerned, which have been profitable for investors in pursuit of profits during ultra-low interest rates in the US.

According to Kay investment macro, if the Bank of Australia keeps interest rates unchanged, the Australian dollar will be against the US dollar.

It will probably drop by about 15% compared with the current level.

The agency expects that the Australian central bank will remain in force until at least 2019.

The euro trend in 2014 shows how the spread of interest rates has led to a sharp fall in the exchange rate.

In June 2014, the European Central Bank lowered its key interest rate to a negative value while the target range of the US Federal Reserve's benchmark interest rate remained at 0%~0.25%.

Since then, as the United States has tightened its policy, spreads between the two regions have been widening.

According to Thomson Reuters data, the euro fell 12% against the US dollar in 2014, down 10% in 2015 and 3.2% in 2016.

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Optimistic about the effect of narrowing spreads, other factors can also affect exchange rates.

The rebound in commodity prices and the robust performance of China's economic data have brighten Australia's outlook and pushed the Australian dollar to 6.5% against the dollar this year.

China is a major trading partner of Australia.

The Fed's 15 day interest rate decision highlights a subtle adjustment of the PBOC: for a long time, China's central bank has been reluctant to be influenced by other central banks, but now it seems to be keeping pace with the United States.

After the Federal Reserve announced last week that it would raise interest rates a few hours later, the Central Bank of China also raised a set of money market interest rates.

Observers believe the move is aimed at supporting the renminbi by inhibiting interest rate differentials and controlling the surge in lending.

Since the global financial crisis, the United States and other countries in the world have adopted massive monetary stimulus measures, which means that the decision making influence of Washington and Frankfurt is now being pmitted to Beijing in an unprecedented way.

"No one can sit there and pretend that the decisions of the European central bank or the Federal Reserve have nothing to do with themselves because the scale of the capital flows is too large," said Michael Spence, a professor at the Nobel prize winner and a professor at the Stern School of business at New York University.

You can create a world that has nothing to do with it, but that's not the world we live in. I think this applies to China, including China.

The Central Bank of every country. "

Chinese officials say they are not following anyone else. The main motive force for tightening policy is domestic factors.

One of China's many domestic pressures is the real estate price bubble.

45% of last year's new loans were mortgages, most of which were personal mortgages, and the government was determined to curb the bubble.

Other pressures include higher factory prices and higher debt levels.

Some economists said that the central bank's quick response to the Fed's decision to raise interest rates shows that China's economic growth is stabilizing and market sentiment is improving, giving the Chinese central bank the opportunity to tighten monetary market policies without damaging the economy by raising benchmark interest rates.

This policy operation also helps to support RMB and control capital outflow.

Some experts say that as long as China's economy remains stable, this operation will last until the second half of this year.

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