Binary Options: Why Pelosi’s visit to Taiwan won’t be an impactful event for the AUD/USD.

Introduction: The Pelosi word salad….

The mainstream media adds a fear premium in every political story it writes.  Nancy Pelosi’s trip to Asia is another example.  The Speaker of the House and Democrat of California said her trip is intended to focus on “mutual security, economic partnership and democratic governance.”

Mrs Pelosi went on further to say:

“In the face of the Chinese Communist Party’s (CCP) accelerating aggression, our congressional delegation’s visit should be seen as an unequivocal statement that America stands with Taiwan, our democratic partner, as it defends itself and its freedom.”

In response to Mrs Pelosi’s visit, China sent airplanes and battleships to the unofficial dividing line in the Taiwan Strait.  There have been diplomatic warnings surrounding perceived signals from the visit that the U.S. is abandoning its policy under the Taiwan Relations Act of 1979, a piece of legislation where, on the one hand, the U.S. does not explicitly recognize Taiwan’s independence from mainland China, but on the other hand pledges to provide Taiwan with defensive weapons systems and maintain its capacity to protect the island from any coercion that threatens the island’s economic and social security.

News from the Outback …

As the rhetoric increased, I decided to take a look at the exchange rate of the Australian dollar, given its role as a barometer of what is happening in the region.  The trumped-up media fear in the region resulting in part from Mrs Pelosi’s visit may have driven the price of the Aussie dollar up in terms of the U.S. dollar.  According to data from OANDA, the AUD/USD was priced at 0.6815 on 4 July 2022, climbing, in terms of the USD, to 0.7015 as of 2 August 2022.

But other significant monetary policy events may be having just as or more important an impact, that being the recent 50 basis point increase in rates by the Reserve Bank of Australia, and the expected continued hiking of overnight rates by the U.S. Federal Reserve System.

Nothing to see here. Keep it moving…

If Mrs Pelosi’s visit is having any impact on rates, it should be short lived.  Other than the pre-visit rhetoric, nothing was said in her statements that tells me that the tension, as the media puts it, from this visit will be long lived past the time her plane leaves the tarmac.

Alton Drew

2 August 2022

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